Skip to content

Advertiser Disclosure

Credit Card Insider is an independent, advertising supported website. Credit Card Insider receives compensation from some credit card issuers as advertisers. Advertiser relationships do not affect card ratings or our Editor’s Best Card Picks. Credit Card Insider has not reviewed all available credit card offers in the marketplace. Content is not provided or commissioned by any credit card issuers. Reasonable efforts are made to maintain accurate information, though all credit card information is presented without warranty. When you click on any ‘Apply Now’ button, the most up-to-date terms and conditions, rates, and fee information will be presented by the issuer. Credit Card Insider has partnered with CardRatings for our coverage of credit card products. Credit Card Insider and CardRatings may receive a commission from card issuers. A list of these issuers can be found on our Editorial Guidelines.

The Surprising Truth About APR vs. Interest Rate for Credit Cards

3 min read
Susan Shain By Susan Shain Jul 11, 2018 | Updated Sep 23, 2019

When you get a new credit card, you’ll often see a range of numbers: minimum payments, due dates, balance transfer fees, and something called the “annual percentage rate” (APR).

You may have heard of APRs when it comes to home loans — and if you’re a veteran home buyer, you know they’re not the same as interest rates.

But what about credit cards? How do issuers calculate their APR vs. interest rate? And does it matter?

APR vs. Interest Rate for Credit Cards

Lenders calculate APR by combining the cost of interest plus the cost of fees. The Truth in Lending Act requires lenders to advertise a loan’s APR — as opposed to its interest rate — because it’s a more accurate reflection of the loan’s total cost.

Your monthly mortgage payment, for example, might include an array of finance charges, from your loan origination fee to your mortgage insurance to closing costs. All those fees, plus interest, must be included in the APR disclosed by the lender.

But whereas interest and APR are different for mortgage loans, they’re interchangeable when it comes to credit cards.

You don’t pay an origination fee with credit cards, and most of the other fees are optional. (You’ll pay annual fees whether or not you make purchases, so they’re not a cost of borrowing — and aren’t included in APRs.)

The bottom line: with credit cards, your APR is the same as your interest rate. 

That doesn’t mean credit cards are free beyond interest fees, though. Their additional costs can include:

  • Annual fees: Charged once a year for the perks of using a card. If you want to avoid this, check out these cards without annual fees.
  • Cash advance fees: Charged when you take out cash using your card’s line of credit (which we don’t recommend).
  • Balance transfer fees: Charged when you transfer a balance from one account to another. (People do this to move a balance from a high APR account to a low APR account.)
  • Foreign transaction fees: Charged when you make a purchase in another currency. The best travel cards are free of these fees.

Read this post for more on how paying a credit card works.

Your Credit Card’s APR

Your credit scores affect a range of things, including your ability to get a home mortgage or credit card, the size of your credit line — and, you guessed it, your APR.

You can see your credit card’s APR by looking at the last page of your statement. Different rates apply to different credit card balances, which come from different activities. They include:

  • Purchase APR: What you’ll pay on everyday credit card purchases (usually 8–25%).
  • Introductory APR: Some cards offer this on purchases or balance transfers for a limited time (usually at least a year, and usually 0%).
  • Balance transfer APR: When you transfer a balance from one card to another (usually 8–25%).
  • Cash advance APR: When you borrow money at an ATM with your credit card (usually around 25%).
  • Penalty APR: If you pay more than 60 days late the card issuers may implement a high penalty APR on your balance (usually 29.99%).

When applying for a credit card, you can check all the APRs and fees in a designated card summary, known as a Schumer Box.

The Surprising Truth About APR vs. Interest Rate for Credit Cards

The Schumer Box for the Citi Double Cash (Review), as of 7/6/18.

When Your Credit Card’s APR Might Change

Most credit card APRs are variable (which makes them very different from, say, a 30-year fixed-rate mortgage).

Here are three situations in which your APR might change:

  • The “prime rate” goes up or down: You’ve probably heard that the Fed determines interest rates. What you might not know is your credit card’s APR is based on this rate — and if it changes, your credit card’s APR will, too.
  • Your creditworthiness changes: Since your APR is based on your creditworthiness, card issuers may adjust your APR if your credit history changes significantly.
  • You’re irresponsible with your card: If you make bad decisions with your credit card (for example, pay more than 60 days late), your card issuer might assess a “penalty APR” that’s higher than your normal rate. After six months, it must reevaluate — so you should make six on-time payments and then ask to return to a lower rate.

Here’s more on how credit card companies calculate APR.

When Credit Card APRs Don’t Matter

Although lower interest rates are always attractive when you’re borrowing money, they don’t have to matter for credit cards.

Because, when you use a credit card strategically, you can avoid paying interest completely.

Most credit card issuers offer a “grace period” after you make new purchases, which means you won’t accrue interest until after your statement’s due date. If you pay off your credit card’s statement balance each month, you’ll never pay interest on your purchases with most cards.

By only spending what you can afford to pay off in full each month, you’ll reap the benefits of using a credit card — rewards, security, credit building — without incurring additional costs.

To get started, here are the best credit cards available today.

Was this helpful?

Credit Card Insider receives compensation from advertisers whose products may be mentioned on this page. Advertiser relationships do not affect card evaluations. Advertising partners do not edit or endorse our editorial content. Content is accurate to the best of our knowledge when it's published. Learn more in our Editorial Guidelines.

The responses below are not provided or commissioned by bank advertisers. Responses have not been reviewed, approved or otherwise endorsed by bank advertisers. It is not the bank advertisers' responsibility to ensure all posts and/or questions are answered.