What is APR on a credit card?

You'll see references to APR on your monthly credit card statement. The interest on a credit account is called the "annual percentage rate," or "APR.

" When you carry a balance on your credit card, APR usually comes into play. However, cash advances and late payments are also subject to APRs, which may be higher than your regular rate.

Everyone who has a credit card should know how annual percentage rates (APRs) work, when they might be used, and how good money habits can help you avoid them.

How APR works

Credit card APR is usually used to describe the amount of interest that is added to your account during a billing cycle. This is how a credit card's APR is worked out:

[Daily rate] * [Average daily balance] * [Days in billing cycle] = Credit card interest

Price per day: This number can be found by dividing your credit card's purchase APR by 365. (the number of days in a year). For example, if your annual percentage rate is 18%, your daily rate is.00049%.

On average, each day: At the end of each day in the billing cycle, add up your balances and divide the total by the number of days in the billing cycle. This is the average amount you have each day.

Billing cycle days: Then, your daily rate is multiplied by your average daily balance, and that number is multiplied by the number of days in the billing cycle. Most issuers add to the interest every day.
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