What is APR on a credit card?
Editor's Note
As a credit cardholder, it's likely that you've come across the term "annual percentage rate." Even if you have a rough idea of how APR works and what it is, you may still have questions about how it affects you personally — and especially how it affects your finances related to your credit card accounts.
This guide is designed to help demystify credit card APRs and how they work. First, let's discuss what an APR is. Then, we'll go over how companies calculate interest on your account and how you can avoid paying interest to keep more money in your pocket.
What is APR on a credit card?
APR represents the yearly cost you pay to borrow money from a lender or credit card issuer.
Like with personal loans or auto loans, installment loans APR includes both the interest and fees that a lender may charge. However, credit card APR does not include annual fees. In the case of credit cards, APR just stands for the yearly interest rate.Related: The pros and cons of zero percent APR credit cards
What are the different types of APR?
The most common type of credit card APR is called:
- Purchase APR: The interest rate applied to purchases made with your card. This rate can be fixed (an APR that’s static over time) or variable (one that can change according to the prime rate, which is a metric that banks use to determine overall interest rates).
There are a few other types of APR you might come across, too:
- Introductory APR: This is a promotional interest rate offered for a limited period of time on a new card, sometimes as low as 0%. It can apply to purchases, balance transfers or both. Once the introductory offer expires, the card reverts to a regular APR.
- Cash advance APR: This is the rate for borrowing cash from your credit card, typically higher than your purchase APR, with no grace period. It’s also often applied to convenience checks.
- Penalty APR: Penalty APR applies to missed or returned payments, reaching as high as 29.99%. You might have to make several on-time payments in a row before your credit card issuer removes the penalty APR. Avoid this at all costs.
Related: How to choose a credit card with 0% APR
What is a good APR?
So, what's considered a good APR? According to the Federal Reserve, the average credit card APR exceeded 20% in late 2024. By that measure, credit card APRs are significantly higher than other forms of consumer credit, including some personal loans and auto loans. So, relatively speaking, a "good" credit APR may be one that's under 20%. These can be tough to obtain, though.
Credit card interest rates are generally very high, with some exceeding 30%. Make sure you check what the going rates are for any cards you may want to add to your roster. At TPG, we always recommend paying off your cards every month to avoid incurring interest charges, but we understand that may not always be possible.
Related: TPG’s 10 commandments of credit card rewards
How to calculate APR on a credit card
To understand how credit card companies calculate credit card interest, it’s important to become familiar with a few additional terms:
Daily interest rate
Credit card issuers calculate the daily interest rate by dividing your APR by 365. This figure is also called your daily rate.
Compounding interest
Depending on the terms of your credit card agreement, a card issuer may take your daily rate and multiply it by your current balance or your average daily balance. The result is added to your overall balance, increasing the amount you owe. This process is called daily compounding interest.
Average daily balance
To calculate your average daily balance, write down your credit card balance at the end of each day in your billing cycle. Then, average those numbers together. (In other words, add the numbers, then divide the sum by the number of days in the billing cycle.)
Depending on your credit card agreement, you may be able to use the following formula (perhaps with some tweaks) to calculate the credit card interest you’ll pay in a billing cycle:
- Daily interest rate multiplied by the average daily balance multiplied by the number of days in the billing cycle equals credit card interest
Here’s an example to illustrate how credit card APR works:
- Calculate daily interest: Suppose your credit card APR is 18.25%. Your daily rate would be 0.05% in this scenario (18.25% divided by 365 days equals 0.05%).
- Figure out your average daily balance: We’ll assume that your average daily balance is $1,000.
- Look up the number of days in your billing cycle: For this example, we’ll assume a 30-day billing cycle. This number can vary from one card issuer to another.
- Calculate: Using the hypothetical numbers above, a daily interest rate of 0.05% (0.0005) multiplied by an average daily balance of $1,000 multiplied by a 30-day billing cycle equals $15 in interest charges.
How to avoid paying interest on credit cards
It’s always nice to lock in the lowest possible interest rate when borrowing money. But APR might not matter as much with credit cards as it does with other types of credit. This is provided you follow an essential rule mentioned above: Always aim to pay your full statement balance off by the due date of every billing cycle.
When your credit card issuer sends you a copy of your credit card statement, you will have a grace period between your statement closing date and the due date on your account.
Per the Credit Card Accountability Responsibility and Disclosure Act of 2009, this grace period must last at least 21 days. As long as you pay off your balance during this grace period (i.e., by the due date), you should be able to avoid paying interest charges on your credit card account.
You could also opt to pay your credit card balance off early — before the statement closing date on your account. This strategy might help you lower your credit card utilization on your credit report and boost your credit score as a result.
However, if you’re not in the habit of paying off your credit card balance every month, the credit card APR matters a lot. In this scenario, you should pay close attention to your credit card’s APR. Because of their high average APRs, credit card interest charges can add up quickly.
Related: Credit card economics: A look at the fees that you rarely see
Bottom line
Credit cards come with many attractive perks, especially rewards credit cards that allow you to earn points, miles, cash back and more.
It’s important to understand how credit card APR works and how to avoid unnecessary costs. Otherwise, high-interest charges can offset any benefits you might receive.
Make sure you have a solid strategy for tracking your credit card spending and trying to avoid paying interest in the first place. If you are struggling with your credit card debt, create a plan to pay it down as fast as possible to avoid wasting money on interest.
For more information, check out our list of the best 0% APR cards a great place to start your research on current low-APR credit card options.
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Annual Fee
Recommended Credit
Why We Chose It
There’s a lot to love about the Amex Gold. It’s a fan favorite thanks to its fantastic bonus-earning rates at restaurants worldwide and at U.S. supermarkets. If you’re hitting the skies soon, you’ll also earn bonus Membership Rewards points on travel. Paired with up to $120 in Uber Cash annually (for U.S. Uber rides or Uber Eats orders, card must be added to Uber app and you can redeem with any Amex card), up to $120 in annual dining statement credits to be used with eligible partners, an up to $84 Dunkin’ credit each year at U.S. Dunkin Donuts and an up to $100 Resy credit annually, there’s no reason that foodies shouldn’t add the Amex Gold to their wallet. These benefits alone are worth more than $400, which offsets the $325 annual fee on the Amex Gold card. Enrollment is required for select benefits. (Partner offer)Pros
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- Not as useful for those living outside the U.S.
- Some may have trouble using Uber and other dining credits
- You may be eligible for as high as 100,000 Membership Rewards® Points after you spend $6,000 in eligible purchases on your new Card in your first 6 months of Card Membership. Welcome offers vary and you may not be eligible for an offer. Apply to know if you’re approved and find out your exact welcome offer amount – all with no credit score impact. If you’re approved and choose to accept the Card, your score may be impacted.
- Earn 4X Membership Rewards® points per dollar spent on purchases at restaurants worldwide, on up to $50,000 in purchases per calendar year, then 1X points for the rest of the year.
- Earn 4X Membership Rewards® points per dollar spent at US supermarkets, on up to $25,000 in purchases per calendar year, then 1X points for the rest of the year.
- Earn 3X Membership Rewards® points per dollar spent on flights booked directly with airlines or on AmexTravel.com.
- Earn 2X Membership Rewards® points per dollar spent on prepaid hotels and other eligible purchases booked on AmexTravel.com.
- Earn 1X Membership Rewards® point per dollar spent on all other eligible purchases.
- $120 Uber Cash on Gold: Add your Gold Card to your Uber account and get $10 in Uber Cash each month to use on orders and rides in the U.S. when you select an American Express Card for your transaction. That’s up to $120 Uber Cash annually. Plus, after using your Uber Cash, use your Card to earn 4X Membership Rewards® points for Uber Eats purchases made with restaurants or U.S. supermarkets. Point caps and terms apply.
- $84 Dunkin' Credit: With the $84 Dunkin' Credit, you can earn up to $7 in monthly statement credits after you enroll and pay with the American Express® Gold Card at U.S. Dunkin' locations. Enrollment is required to receive this benefit.
- $100 Resy Credit: Get up to $100 in statement credits each calendar year after you pay with the American Express® Gold Card to dine at U.S. Resy restaurants or make other eligible Resy purchases. That's up to $50 in statement credits semi-annually. Enrollment required.
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- Explore over 1,000 upscale hotels worldwide with The Hotel Collection and receive a $100 credit towards eligible charges* with every booking of two nights or more through AmexTravel.com. *Eligible charges vary by property.
- No Foreign Transaction Fees.
- Annual Fee is $325.
- Terms Apply.
Rewards Rate
| 4X | Earn 4X Membership Rewards® points per dollar spent on purchases at restaurants worldwide, on up to $50,000 in purchases per calendar year, then 1X points for the rest of the year. |
| 4X | Earn 4X Membership Rewards® points per dollar spent at US supermarkets, on up to $25,000 in purchases per calendar year, then 1X points for the rest of the year. |
| 3X | Earn 3X Membership Rewards® points per dollar spent on flights booked directly with airlines or on AmexTravel.com. |
| 2X | Earn 2X Membership Rewards® points per dollar spent on prepaid hotels and other eligible purchases booked on AmexTravel.com. |
| 1X | Earn 1X Membership Rewards® point per dollar spent on all other eligible purchases. |
Intro Offer
You may be eligible for as high as 100,000 Membership Rewards® Points after spending $6,000 in eligible purchases on your new Card in your first 6 months of Membership. Welcome offers vary and you may not be eligible for an offer.As High As 100,000 points. Find Out Your Offer.Annual Fee
$325Recommended Credit
Credit ranges are a variation of FICO® Score 8, one of many types of credit scores lenders may use when considering your credit card application.Excellent to Good
Why We Chose It
There’s a lot to love about the Amex Gold. It’s a fan favorite thanks to its fantastic bonus-earning rates at restaurants worldwide and at U.S. supermarkets. If you’re hitting the skies soon, you’ll also earn bonus Membership Rewards points on travel. Paired with up to $120 in Uber Cash annually (for U.S. Uber rides or Uber Eats orders, card must be added to Uber app and you can redeem with any Amex card), up to $120 in annual dining statement credits to be used with eligible partners, an up to $84 Dunkin’ credit each year at U.S. Dunkin Donuts and an up to $100 Resy credit annually, there’s no reason that foodies shouldn’t add the Amex Gold to their wallet. These benefits alone are worth more than $400, which offsets the $325 annual fee on the Amex Gold card. Enrollment is required for select benefits. (Partner offer)Pros
- 4 points per dollar spent on dining at restaurants worldwide and U.S. supermarkets (on the first $50,000 in purchases per calendar year; then 1 point per dollar spent thereafter and $25,000 in purchases per calendar year; then 1 point per dollar spent thereafter, respectively)
- 3 points per dollar spent on flights booked directly with the airline or with amextravel.com
- Packed with credits foodies will enjoy
- Solid welcome bonus
Cons
- Not as useful for those living outside the U.S.
- Some may have trouble using Uber and other dining credits
- You may be eligible for as high as 100,000 Membership Rewards® Points after you spend $6,000 in eligible purchases on your new Card in your first 6 months of Card Membership. Welcome offers vary and you may not be eligible for an offer. Apply to know if you’re approved and find out your exact welcome offer amount – all with no credit score impact. If you’re approved and choose to accept the Card, your score may be impacted.
- Earn 4X Membership Rewards® points per dollar spent on purchases at restaurants worldwide, on up to $50,000 in purchases per calendar year, then 1X points for the rest of the year.
- Earn 4X Membership Rewards® points per dollar spent at US supermarkets, on up to $25,000 in purchases per calendar year, then 1X points for the rest of the year.
- Earn 3X Membership Rewards® points per dollar spent on flights booked directly with airlines or on AmexTravel.com.
- Earn 2X Membership Rewards® points per dollar spent on prepaid hotels and other eligible purchases booked on AmexTravel.com.
- Earn 1X Membership Rewards® point per dollar spent on all other eligible purchases.
- $120 Uber Cash on Gold: Add your Gold Card to your Uber account and get $10 in Uber Cash each month to use on orders and rides in the U.S. when you select an American Express Card for your transaction. That’s up to $120 Uber Cash annually. Plus, after using your Uber Cash, use your Card to earn 4X Membership Rewards® points for Uber Eats purchases made with restaurants or U.S. supermarkets. Point caps and terms apply.
- $84 Dunkin' Credit: With the $84 Dunkin' Credit, you can earn up to $7 in monthly statement credits after you enroll and pay with the American Express® Gold Card at U.S. Dunkin' locations. Enrollment is required to receive this benefit.
- $100 Resy Credit: Get up to $100 in statement credits each calendar year after you pay with the American Express® Gold Card to dine at U.S. Resy restaurants or make other eligible Resy purchases. That's up to $50 in statement credits semi-annually. Enrollment required.
- $120 Dining Credit: Satisfy your cravings, sweet or savory, with the $120 Dining Credit. Earn up to $10 in statement credits monthly when you pay with the American Express® Gold Card at Grubhub, The Cheesecake Factory, Goldbelly, Wine.com, and Five Guys. Enrollment required.
- Explore over 1,000 upscale hotels worldwide with The Hotel Collection and receive a $100 credit towards eligible charges* with every booking of two nights or more through AmexTravel.com. *Eligible charges vary by property.
- No Foreign Transaction Fees.
- Annual Fee is $325.
- Terms Apply.