APR stands for Annual Percentage Rate. On a credit card it’s the yearly cost of borrowing expressed as a percentage of your balance. If you carry that balance from one month to the next, you pay this rate divided across each day of the billing cycle.
The daily rate is the rate that actually charges you
Take your APR and divide by 365. That gives you the daily periodic rate. Each day, the issuer multiplies your average daily balance by this rate and adds the result to what you owe. By the end of the billing cycle those daily charges have stacked up into the “interest charged” line on your statement.
Worked example
$2,000 balance at 22% APR
- Daily periodic rate: 22% ÷ 365 = 0.0603%
- Daily interest charge on $2,000: $1.21
- 30-day billing cycle: $36.16 in interest
- Annual cost at this balance: about $440
Real life is messier because your balance changes during the cycle. Issuers average it across the month (the “average daily balance” method). The shape of the answer is identical.
The grace period: how to pay zero interest
Federal law (specifically the CARD Act of 2009, codified in Regulation Z) requires credit card issuers to give you at least 21 days between when your statement is sent and when payment is due. If you pay the full statement balance by the due date, no interest accrues on new purchases. This grace period is the single most valuable consumer protection on any credit card; structure your finances to use it and the APR is irrelevant.
Two things break the grace period. The first is carrying a balance: once you don’t pay in full, new purchases start accruing interest from the day they post until the next time you clear the statement balance entirely. The second is cash advances and balance transfers, which almost always accrue interest from day one and have no grace period at all.
Reader tool
Payoff calculator
Plug in your balance, APR, and what you can pay each month. We’ll tell you how long it takes to clear and what the interest costs you in total.
At your APR
2 yr 2 mo
to clear the balance
$771
total interest paid
At 14% (8 points lower)
1 yr 11 mo
to clear the balance
$436
total interest paid
This calculator uses standard monthly compounding (APR ÷ 12 applied to the remaining balance each month). Real card statements compound daily, which changes the result by a few dollars on a typical balance. The shape of the answer (how long, how much) is identical.
Variable vs fixed APR
Almost all consumer credit cards have a variable APR. The card agreement sets it as the prime rate plus a margin: for example, “Prime + 11.99%” translates today into about 20.49% (8.5% prime + 11.99 margin). When the Federal Reserve raises or lowers the federal funds rate, the prime rate follows within a few weeks, and your card APR adjusts at your next billing cycle.
Fixed APR cards exist (some credit unions still offer them) but issuers can still change a fixed rate with at least 45 days’ written notice under the CARD Act. “Fixed” is more about predictability than permanence.
The minimum payment trap
Issuers calculate the minimum payment as roughly 1% to 2% of your balance plus that month’s accrued interest, with a floor of about $25. That’s engineered: it covers the interest plus a token bit of principal, which keeps the balance and the issuer’s revenue largely intact.
| Monthly payment | Time to clear | Total interest paid |
|---|---|---|
| Minimum (~$60) | ~16 years | ~$4,200 |
| $100 / month | ~3.5 years | ~$1,150 |
| $200 / month | ~1.5 years | ~$490 |
The CARD Act now requires every monthly statement to disclose what happens if you pay only the minimum and what payment would clear the balance in 36 months. Read it.
What the APR doesn’t cover
APR is the cost of borrowing on purchases. It is not the entire cost of holding the card. Other costs to check on the issuer’s pricing terms:
- Annual fee. Adds a fixed dollar cost regardless of how much you spend or borrow. A $95 annual fee on a low-APR card is a wash if it saves you 3 percentage points on a $5,000 balance; it’s a poor deal otherwise.
- Late fees and penalty APR. Capped at $30 to $41 by the CARD Act and the CFPB’s 2024 rule (under court challenge). Some issuers reserve a higher penalty APR for repeated late payments.
- Cash advance APR and fee. Almost always higher than your purchase APR (often 25%+) and starts accruing immediately. Plus a 3% to 5% transaction fee. Avoid.
- Foreign transaction fees. Typically 3% on international purchases. Many low-APR cards charge them.
- Balance transfer fee. Usually 3% to 5% of the amount transferred. Critical when comparing intro 0% offers; see our break-even calculator.
Next step
Find a card with a lower APR.
Now that the maths is clear, compare the cards we’ve picked for the lowest ongoing rates and the longest 0% intros. Compare low APR cards →
Reader questions
Frequently asked questions
Is APR the same as my interest rate?v
Effectively yes for credit cards, with one wrinkle. APR (Annual Percentage Rate) is the yearly cost of borrowing expressed as a percentage. On most consumer credit cards, the APR equals the simple interest rate because there are no points or origination fees. On mortgages, APR includes those costs and so differs from the rate; on cards, it does not.
How does daily compounding actually work?v
Issuers divide your APR by 365 (or 360, depending on the card agreement) to get a daily periodic rate. Each day they multiply that rate by your balance and add the result to what you owe. So a 22% APR card charges roughly 0.0603% in interest per day, applied to whatever you currently owe. By month-end those daily charges have compounded slightly above the simple monthly figure.
If I pay my statement in full, do I pay any interest at all?v
On purchases, no, provided your card has a grace period of at least 21 days (the CARD Act minimum) and you pay the full statement balance by the due date. Cash advances and balance transfers usually accrue interest from day one with no grace period; check the issuer's pricing terms.
Why does my variable APR keep changing?v
Almost all consumer credit cards in the US carry a variable APR set as the prime rate plus an issuer margin. The prime rate moves whenever the Federal Reserve adjusts its target federal funds rate. Issuers must give you written notice of an APR increase, and under the CARD Act of 2009 they generally cannot apply a higher rate to existing balances except in narrow circumstances (such as a missed payment of 60 days or more).
What's the minimum payment trap?v
Card statements quote a minimum payment that's typically 1% to 2% of your balance plus that month's interest, with a floor of about $25. Paying only the minimum on a $3,000 balance at 22% APR can stretch the payoff over 16 years and cost more than $4,000 in interest. The CARD Act requires issuers to disclose this on every statement, but the warning still surprises most people.