what is apr on a credit card

What Is APR On A Credit Card & How Does It Work?

Understanding the ins and outs of credit cards is paramount to making informed decisions about your financial health while ensuring the right credit card usage. Knowing what APR on a credit card is among the essential components of credit card ownership. This is because it is a pivotal factor that directly influences financial obligations.

But you may wonder how. You may also wonder what the full form of APR is and how it impacts your credit card transactions and overall financial stability. Well, to get answers to all these questions, you must read this article till the end. So let's get started. 

What is APR?

The full form of APR is the Annual Percentage Rate. The APR is a measure used to express the annual borrowing cost. It is meant to provide borrowers with a standardised way to compare the costs of different loans or credit products.

The APR includes the interest rate charged on the loan and any additional fees and costs associated with obtaining the loan.  

What are the types of APR?

After understanding the meaning of APR, the next important thing to know about APR is its types. APR is of the following types:

1. Purchase APR

It is the interest rate you will have to pay when you use a credit card to buy things and do not pay the amount in full before the end of the grace period. The grace period is the time between the billing cycle and the due date of clearance of the bill.

2. Balance transfer APR

This type of APR is applicable when you transfer the balance from one credit card to another with a lower interest rate. The balance transfer APR is applicable from the date the transfer is made.

3. Cash advance APR

Remember, using a credit card to withdraw money is not free. When you withdraw cash from your credit card, you are charged with a Cash Advance APR. This interest rate is often higher than other APRs and starts applying immediately. 

4. Penalty APR

If you are late on making payments, the Penalty APR kicks in. This interest rate is higher than your regular APR. 

5. Introductory APR

Sometimes, credit cards come with introductory offers where you can avail of lower or 0% APR for a given period. This APR applies to new purchases and balance transfers. 

Must Read: What Is A Credit Card Billing Cycle?

How does an APR work?

The Annual Percentage Rate is like the yearly cost of borrowing money. This rate includes the interest you pay when you borrow (like from a credit card or a loan) and any extra charges linked to that borrowing.

Usually, if you pay off everything you owe on your credit card by the due date, you will not be charged extra interest on the things you bought. But, if you do not pay in full and still owe money, the interest begins to add up. This interest gets added to the total amount you owe at the end of each billing period. 

How to determine your credit card's APR? 

When it comes to your credit card, knowing the APR is crucial. You can find the APR of your credit card in various ways:

1. Check your cardholder agreement

The primary source to consult for essential information about your card's APR is your cardholder agreement, which you received upon acquiring your credit card. This agreement contains vital particulars regarding the APR associated with your card.

2. Visit the card issuer's website

If you require assistance locating your agreement, consider visiting your credit card company's website. These websites often offer online resources detailing various card types along with their corresponding APRs. 

3. Reach out to customer service

If you still need clarification, call the customer service number on the back of your card. They can clarify the APR of your credit card and help you if you have any other questions.

How to calculate your credit card interest using APR?

Calculating your credit card interest using APR is essential to understand the cost of borrowing. Here is the process to calculate your credit card interest using APR:

Step 1: Know your APR

Check your credit card statement or agreement to find your APR. It is usually mentioned as a yearly rate, like 18%.

Step 2: Convert APR to daily rate

Divide your APR by 365 (days a year) to get the daily interest rate. For example, if your APR is 18%, the daily rate is around 0.0493% (18 / 365).

Step 3: Check your outstanding balance

Determine how much you owe on your credit card. This is your outstanding balance.

Step 4: Calculate daily interest

Multiply your outstanding balance by the daily interest rate. This gives you the interest that accumulates daily. For instance, if you owe Rs 1,000 and the daily rate is 0.0493%, your daily interest is about Rs 0.49 (1,000 * 0.000493).

Step 5: Multiply for total interest

Now, multiply your daily interest by the days in your billing cycle. This is usually around 30 days. If your daily interest is Rs.0.49, the interest for the month would be about Rs.14.70 (0.49 * 30).

Step 6: Understand minimum payment

Remember, your credit card company might expect you to pay a minimum monthly amount. This payment goes toward both interest and reducing your balance.

Step 7: Deduct interest from payment

Your credit card company will adjust the interest when you make your monthly payment. The rest will go towards reducing what you owe.

Step 8: Repeat calculation monthly

These steps remain the same for every month until you carry a balance. Your interest amount will decrease as your balance goes down.

Must Read: Credit Card For Self Employed Individuals

What is a good APR for a credit card?

A favourable APR for a credit card typically falls within the range of 13% to 22%. However, a ‘good’ APR can vary based on individual circumstances, creditworthiness, and specific credit card terms.

How to lower your credit card's APR?

You can reduce the APR for a credit card in several ways. They are as follows:

1. Improve your credit score

Individuals with higher credit scores frequently receive reduced APRs from lenders. Your score can be enhanced by consistently settling bills promptly and maintaining minimal credit card balances.

2. Negotiate with your card issuer

Ask your credit card company for a lower APR. If you are a good customer who pays on time, they might be willing to work with you.

3. Shop around for better offers

Many credit cards offer lower APRs than your current one. Look for offers with better rates and consider switching if it makes sense for you.


Now that you know the meaning of APR, you must understand that APR plays a crucial role in your financial decisions. It impacts the repayments when you carry a balance on your card.

Thus, you should remember that APR is not merely a number but a key indicator of the financial implications of borrowing money through your credit card. So, make sure you pay more attention to the APR of your card before carrying any balance forward.