APR basics: how credit card interest really works.

When APR actually matters

APR is not equally important for everyone. For some cardholders it is almost irrelevant; for others it is the single most important number on the page. It depends on **how you use the card**.

APR matters most when:

• You plan to **carry a balance** (not pay in full every month).
• You are considering **balance transfers** from one card to another.
• You use the card for **larger purchases** you may repay over several months.
• Your income or expenses are irregular, so there is a realistic risk of **partial payments**.

APR matters less (but never zero) when:

• You **always pay the full statement balance** by the due date (no interest is usually charged).
• You mainly use the card to access **rewards, protections or benefits**, not as a loan.
• The card is a **corporate or business card** that is paid off monthly and tracked through your finance system.

Even if you aim to pay in full, life is messy. Understanding APR is useful as a **risk management tool**: it helps you see how costly it can be if a temporary balance turns into a longer-term one. For deeper context, see the Credit score factors guide and the Secured & builder cards guide.

How credit card APR is calculated in practice

APR is presented as a **yearly percentage**, but interest is typically calculated **per day**. The exact math and terminology vary by issuer and region, but many systems follow this kind of structure:

1. The issuer takes the **APR** and divides it by 365 (or sometimes 360) to find a daily rate.
2. Each day, interest is applied to your **average daily balance** for the relevant transaction type (purchases, balance transfers, cash advances, etc.).
3. At the end of the statement period, all daily interest is added up and posted to your account as **interest charges**.
4. If you do not pay your full statement balance, the new interest is added to your principal, and the next month you may pay **interest on interest** (this is the compounding effect).

Many statements show a section similar to “interest charged this period”, which breaks down interest by transaction type. Reading that area carefully can reveal which part of your balance is generating most of the cost.

Layouts for future, data-driven APR comparisons can be seen on structural microsites like CompareCC.Creditcard and modern payments overviews on Fin.Creditcard. These sites are also prototype/educational only.

Different types of APR you may see

Credit card disclosures often list more than one APR. Each applies to a specific **kind of transaction** or situation. Some common labels include:

• Purchase APR – applies to regular purchases you make with the card.
• Balance transfer APR – applies to balances moved from another card.
• Cash advance APR – applies to cash withdrawals or similar transactions; often higher.
• Penalty APR – may be triggered after serious late payments; again often much higher.
• Introductory or promotional APR – temporary rate (sometimes 0%) for certain transactions.

When comparing cards on cashback or rewards hubs, the **purchase APR** is usually the main reference point. Cash advance APR is often best treated as a “last resort” option rather than a core product feature.

Intro APR vs. ongoing APR

Many offers advertise a low or 0% **intro APR** for purchases or balance transfers. What matters is:

• Which transactions the intro rate applies to (purchases, transfers, or both).
• How long the intro period lasts.
• What the **ongoing APR** is after that period ends.
• Whether interest is charged retroactively if you still have a balance at the end of the promo.

A future version of Choose.Creditcard may surface these details in comparison tables on the Cashback hub, Rewards hub and other sub-hubs, with clear labels and timestamps. For now, this guide is only about how to read the numbers.

What to compare when looking at APR

When you move beyond marketing slogans, APR comparison comes down to a few practical questions about your **realistic use** of the card. The goal is not to chase the lowest number at all costs, but to understand how costly it would be if you **do** carry a balance.

Key comparison points

• The **range of APRs** (many cards show “X%–Y% variable” depending on creditworthiness).
• Whether the APR is **fixed or variable**, and if variable, which index it tracks.
• The **difference** between purchase APR and cash advance / penalty APR.
• How intro APRs, if any, transition to the standard rate.
• Whether the card is primarily a **rewards product** or a **low-rate product** — you often trade one for the other.

Your personal credit profile influences which end of an APR range you are offered. The Credit Score & Rebuild hub and the credit score factors guide explain how payment history and utilization can affect this over time.

Common APR traps and misconceptions

Many misunderstandings about credit cards come from how easy it is to focus on rewards and ignore the cost of borrowing. A few patterns show up across markets:

• “Minimum payment is enough” – Paying only the minimum keeps the account open, but can turn relatively small balances into long, expensive repayment periods.
• “Intro 0% means free money” – Intro periods are conditional: late payments, exceeding your limit or keeping a balance beyond the promo window can change the effective cost.
• “Rewards offset interest” – In most realistic scenarios, rewards earned on a balance do not compensate for double-digit APR.
• “Cash advances work like purchases” – Cash advances often start accruing interest immediately, with higher APR and additional fees.

Another subtle trap is **mixing roles**: using the same card as a high-tech payment tool (contactless, virtual cards, mobile wallets) and as a long-term loan. On the technology side, sites like Tap.Creditcard or NFC.Creditcard (when live) focus on how payments work, not the borrowing aspect.

The safest baseline assumption is simple: **APR is the cost of not paying in full**. If you treat the card primarily as a payment instrument and pay the full statement balance on time, you are usually protected from interest on regular purchases. If that is not realistic in your situation, APR and related terms deserve much more attention.