What Is Credit Card APR and How Does It Actually Work?

APR stands for Annual Percentage Rate, the yearly cost of borrowing money on your credit card, expressed as a percentage. But the way it is actually applied to your balance trips up a lot of people. Let us break it down.

How APR becomes your daily interest

Although APR is an annual number, credit card interest is usually calculated daily. Your card issuer divides your APR by 365 to get a daily periodic rate, then applies it to your balance each day. That is why carrying a balance gets expensive quickly. Interest compounds day after day.

The different types of APR

• Purchase APR: the rate applied to everyday purchases you do not pay off in full.
• Cash advance APR: usually higher than your purchase APR, and interest often starts accruing immediately with no grace period.
• Penalty APR: a much higher rate that can kick in if you miss payments.
• Introductory APR: a temporary low or 0% rate that expires after a set period.

The grace period matters

Most cards offer a grace period. If you pay your statement balance in full by the due date, you pay no interest on purchases. Carry a balance, though, and you typically lose that grace period until you are paid in full again.

What if the interest has outrun you?

If high APRs have pushed your balances beyond what you can manage, you are not alone, and you have options. Debt settlement can help resolve unsecured balances for less than you owe, stopping the cycle of interest from growing the debt further.

This article is provided by Consumer Debt Help Association for general educational purposes only and does not constitute financial, tax, legal, or bankruptcy advice. Program results vary and are not guaranteed; not all clients complete the program. Consumer Debt Help Association is a debt settlement company and is not a lender, credit repair organization, or credit counseling agency. Please read and understand all program materials prior to enrollment.