What is APR on Credit Card? A Complete Guide

If you are a credit card user, knowing the APR is in your best interest. Now, what is APR on a credit card? Basically, it is an annual percentage rate, but this concept is one that many get wrong. 

If you are willing to manage your finances better, understanding what APR is and how it works is essential. To better use your card and boost your overall financial health, explore various aspects of APR. 

What is APR on a Credit Card?

APR stands for Annual Percentage Rate which signifies the yearly cost of borrowing via your credit card. Everything is summed up and shown as a percentage, starting from additional fees on your card right to the interest rates. 

Thus, it is not just your interest rate but also includes all fees and charges associated with the card. It is vital to go for credit card issuers with competitive APRs on their credit cards. This will allow you to pay fewer excess charges on using a credit card.

How Does it Work?

When you use a credit card, you are borrowing money from your issuer. If you pay the due amount on time or before the due date, you don’t have to pay any penalties. If you pay past that, you are liable for many types of fees and charges. This payable amount, as well as APR, depends on your usage. 

Furthermore, if your credit score is low, your APR will be higher and vice versa. Thus, maintaining a high score and opting for a card with a lower APR is better for your pocket, making repayment easier. 

Types of APR

Based on your credit card issuer, the type of APR will change. But the most common ones are as follows. 

• Purchase APR

This one is the most common APR charged by a credit card company. Purchase APR is determined by the purchases you make with your credit card. When you do not pay your balance on time, all your regular credit card spends are likely to accrue this APR. 

• Cash Advance APR

If you go for cash withdrawals with your credit card, this facility attracts a higher APR with no grace period. 

• Penalty APR

In case of missed bill payments or EMIs, the issuer will charge this APR on your credit card. Thus, this APR applies if you make any payments after the due date.

• Introductory APR

Credit card issuers keep their APR low in the first year or so to attract more users. This may apply to balance transfers, unpaid balances for regular purchases and more. 

• Fixed vs. Variable APR

Fixed APR remains the same for a financial year while variable APR is linked with the prime rate of the government and can vary. 

How to Calculate Credit Card Interest with APR?

To calculate what is APR on a credit card, follow this formula.

Average daily balance (ABD) x Days in a billing cycle x Daily periodic rate (%) = Monthly credit card interest

• Average Daily Balance (ABD)

It is the balance on your credit card between billing cycles. You can sum up your daily balance and divide it by the number of days in your billing cycle.

• Billing Cycle

Your billing cycle is the period between two consecutive credit card bills’ closing dates. In most of the cases, it is 30 days. 

• Daily Periodic Rate

To determine this measure, find your purchase APR and divide it by 365 (a year) or 366 (if it is a leap year).

How to Manage APR to Save Money?

If you strive to get your finances under control, it is important to understand how to deal with your card’s APR. Here are some tips:

• Choose a credit card issuer with a lower APR
• Pay your outstanding balances on time
• Take benefits of low introductory APR but know when it changes
• Avoid using your credit card for unnecessary expenses 
• Understand the issuer’s terms and conditions related to all fees and charges

Now that you know what is APR on a credit card, you can use the card in the right way to avoid paying additional interest. Learn to calculate APR and how to check your credit card balance so you can plan better and pay your bill in full. 

Choosing the right card also makes this easier. Consider the One Credit Card. It offers you a 48-day interest-free period, which makes managing your payments easier. It’s powerful mobile app also makes it easy to track your spends and set limits to stay on budget. 

With it, you can earn 5X reward points on the two categories you spent the highest on every month, and there are no annual charges to worry about! Apply now for this lifetime-free card.