The Ultimate Guide to Credit Cards
Wednesday, April 8, 2020

APR vs. Interest Rate: Is There a Difference?

APR vs. Interest Rate: Is There a Difference?

credit card advice

Marcie Geffner
By: Marcie Geffner
Posted: December 9, 2019
Advertiser Disclosure

Borrowing money often involves fees. One such fee is interest, which is calculated as a percentage of the amount you owe. The percentage is the interest rate.

For example, if you borrowed $1,000 for one year with an interest rate of 4%, you’d owe $40 of interest. An interest rate that’s calculated on a yearly basis is known as an annualized percentage rate (APR).

An APR always includes interest. It may also include other fees related to the loan. For example, if you applied for a home mortgage, your APR would include the lender’s fees as well as the interest rate.

With credit cards, the APR typically doesn’t include other fees, such as an annual fee, balance transfer fees, late payment fees, or foreign transaction fees, which may also be charged. When an APR includes interest, but no other fees, the APR and interest rate will be the same — this is true for most card rates.

The 4 Types of Card APRs

Most cards have more than one type of APR. Four common card APRs are:

  • Purchase APR. This APR is applied to new purchases you make with your card and your card balance if you don’t pay it in full every month and you’re not paying an introductory or penalty APR.
  • Introductory APR. This APR is applied to your card balance for a specific period. It may also be applied to new purchases during that time period. The introductory period is usually at least six months and may be up to 18 months or longer. An introductory APR may be as low as 0%. This type of APR is sometimes called a promotional rate or promotional APR.
  • Cash Advance APR. This APR applies if you use your card to get cash, such as from an ATM or with cash advance checks. A cash advance is a form of debt. The APR for a cash advance is typically higher than the card’s purchase APR.
  • Penalty APR. This APR may be applied if you make a late payment or miss a payment. Like the cash advance APR, this APR is typically higher than the card’s purchase APR.

The differences between APRs can be substantial. For example, if you carried a $5,000 balance for one year, you’d pay no interest with a 0% APR, $389 of interest with a 14.99% APR, and $631 of interest with a 24.99% APR. If your balance was higher or you carried the debt longer, you’d pay even more interest with the same APRs.

Most card APRs are variable, which means they can change over time. An APR may change because market rates changed, or your credit score went up or down. If your card’s APR increases, you’ll have to pay more interest to carry the same balance.

A card’s APRs must be disclosed in the cardholder agreement. APRs may also be shown on your monthly statement.

How to Use APR to Calculate Interest

Although APRs are annualized rates, card issuers don’t actually charge interest annually — they charge interest daily. That’s why you should be aware of your card’s Average Daily Periodic Rate (ADPR) as well as its APR.

If you carry a balance, it’s the ADPR that will be used to calculate how much interest you’ll be charged.

Your ADPR should be printed on your statement. This rate is typically rounded, so 16.987% would be shown as 16.99%, for example.

If your card’s ADPR isn’t equal to one 365th of its APR, it may be because your issuer uses a 360-day year rather than a 365-day year for its calculations. That may sound odd, but some issuers reportedly do it that way.

A “Good” APR Depends on Your Credit Score

Some cards charge a lower range of APRs while others charge a higher range. To qualify for the lowest ranges of card APRs, you’ll generally need good or excellent credit.

Your card’s APR may be higher than average if your credit rating is fair or poor. Whether a specific card has a “good” APR depends on the range of APRs for that card and your credit history.

Chart of Estimated APRs by Credit Score

For example, if you have excellent credit, a 30% card APR probably wouldn’t be considered a good APR for you. If you’ve had some issues with credit, that same 30% APR may be the best you’ll be offered.

How To Get a Lower Credit Card APR

A low APR may save you a lot of money if you carry a balance on your credit card. Here are four ways you may be able to get lower APR:

Apply for a new balance transfer card with a 0% introductory balance transfer offer. You may have to pay a balance transfer fee to move your balance to the new card, and the introductory 0% APR may not apply to new purchases with that card, but your APR could drop significantly, making it easier for you to pay off your balance.

0% BALANCE TRANSFER RATING

★★★★★
4.8

OVERALL RATING

5.0/5.0
  • Earn a $150 Bonus after you spend $500 on purchases in your first 3 months from account opening.
  • Earn unlimited 1.5% cash back on all purchases.
  • 0% Intro APR for 15 months from account opening on purchases and balance transfers, then a variable APR of 16.49 - 25.24%.
  • 3% intro balance transfer fee when you transfer a balance during the first 60 days your account is open, with a minimum of $5
  • No annual fee
  • Chase is not an affiliate partner with CardRates and does not review editorial content on our site
Intro (Purchases)
Intro (Transfers)
Regular APR
Annual Fee
Credit Needed
0% Intro APR on Purchases 15 months
0% Intro APR on Balance Transfers 15 months
16.49% - 25.24% Variable
$0
Good/Excellent

0% BALANCE TRANSFER RATING

★★★★★
4.8

OVERALL RATING

4.8/5.0
  • One-time $150 cash bonus after you spend $500 on purchases within 3 months from account opening
  • Earn unlimited 1.5% cash back on every purchase, every day
  • No rotating categories or sign-ups needed to earn cash rewards; plus, cash back won't expire for the life of the account and there's no limit to how much you can earn
  • 0% intro APR on purchases for 15 months; 15.49%-25.49% variable APR after that
  • 0% intro APR on balance transfers for 15 months; 15.49%-25.49% variable APR after that; 3% fee on the amounts transferred within the first 15 months
  • Pay no annual fee or foreign transaction fees
Intro (Purchases)
Intro (Transfers)
Regular APR
Annual Fee
Credit Needed
0% for 15 months
0% for 15 months
15.49% - 25.49% (Variable)
$0
Excellent, Good

0% BALANCE TRANSFER RATING

★★★★★
4.8

OVERALL RATING

5.0/5.0
  • Earn a $150 Bonus after you spend $500 on purchases in your first 3 months from account opening
  • Earn 5% cash back on up to $1,500 in combined purchases in bonus categories each quarter you activate. Enjoy new 5% categories each quarter!
  • Unlimited 1% cash back on all other purchases - it's automatic
  • 0% Intro APR for 15 months from account opening on purchases and balance transfers, then a variable APR of 16.49 - 25.24%.
  • 3% intro balance transfer fee when you transfer a balance during the first 60 days your account is open, with a minimum of $5.
  • Chase is not an affiliate partner with CardRates and does not review editorial content on our site
Intro (Purchases)
Intro (Transfers)
Regular APR
Annual Fee
Credit Needed
0% Intro APR on Purchases 15 months
0% Intro APR on Balance Transfers 15 months
16.49% - 25.24% Variable
$0
Good/Excellent

Apply for a new card with a lower APR. If you didn’t shop for a card with a low APR when you applied for the cards you have or if you’ve improved your credit since then, a new card could be your ticket to a lower APR.

If your credit isn’t good, you may need to raise your credit scores by making your payments on time before you’ll be approved for a card with a low APR.

LOW APR RATING

★★★★★
4.6

OVERALL RATING

4.9/5.0
  • Enjoy a one-time bonus of 50,000 miles once you spend $3,000 on purchases within 3 months from account opening, equal to $500 in travel
  • Earn unlimited 2X miles on every purchase, every day.
  • Miles won't expire for the life of the account and there's no limit to how many you can earn
  • Receive up to $100 application fee credit for Global Entry or TSA Pre✔®
  • Fly any airline, stay at any hotel, anytime; no blackout dates. Plus transfer your miles to over 15+ leading travel loyalty programs
  • No foreign transaction fees
Intro (Purchases)
Intro (Transfers)
Regular APR
Annual Fee
Credit Needed
N/A
N/A
17.24% - 24.49% (Variable)
$0 intro for first year; $95 after that
Excellent, Good

LOW APR RATING

★★★★★
4.6

OVERALL RATING

4.8/5.0
  • $0 annual fee and no foreign transaction fees
  • Earn a bonus of 20,000 miles once you spend $1,000 on purchases within 3 months from account opening, equal to $200 in travel
  • Earn unlimited 1.25X miles on every purchase, every day
  • Travel when you want with no blackout dates and fly any airline, stay at any hotel, anytime
  • Miles won't expire for the life of the account and there's no limit to how many you can earn
  • Transfer your miles to over 15+ leading travel loyalty programs
Intro (Purchases)
Intro (Transfers)
Regular APR
Annual Fee
Credit Needed
0% for 12 months
N/A
14.49% - 24.49% (Variable)
$0
Excellent, Good

LOW APR RATING

★★★★★
4.6

OVERALL RATING

4.8/5.0
  • One-time $150 cash bonus after you spend $500 on purchases within 3 months from account opening
  • Earn unlimited 1.5% cash back on every purchase, every day
  • No rotating categories or sign-ups needed to earn cash rewards; plus, cash back won't expire for the life of the account and there's no limit to how much you can earn
  • 0% intro APR on purchases for 15 months; 15.49%-25.49% variable APR after that
  • 0% intro APR on balance transfers for 15 months; 15.49%-25.49% variable APR after that; 3% fee on the amounts transferred within the first 15 months
  • Pay no annual fee or foreign transaction fees
Intro (Purchases)
Intro (Transfers)
Regular APR
Annual Fee
Credit Needed
0% for 15 months
0% for 15 months
15.49% - 25.49% (Variable)
$0
Excellent, Good

Apply for a new secured card. Secured cards don’t always have the lowest APRs, but you may find some with lower APRs than the cards you already have. To get a secured card, you’ll have to make a deposit, which serves as security, or collateral, for your card debt.

SECURED RATING

★★★★★
4.9

OVERALL RATING

4.0/5.0
  • No annual fee, and all the credit building benefits with responsible card use
  • Unlike a prepaid card, it builds credit when used responsibly, with regular reporting to the 3 major credit bureaus
  • Access to an authorized bank account is required to make your $49, $99 or $200 refundable security deposit
  • Make the minimum required security deposit and you'll get an initial credit line of $200. Plus, deposit more money before your account opens to get a higher credit line
  • Get access to a higher credit line after making your first 5 monthly payments on time with no additional deposit needed
  • Easily manage your account 24/7 with online access, by phone or using our mobile app
Intro (Purchases)
Intro (Transfers)
Regular APR
Annual Fee
Credit Needed
N/A
N/A
26.99% (Variable)
$0
Limited, Bad
OpenSky® Secured Visa® Credit Card Review

at Capital Bank'ssecure website

SECURED RATING

★★★★
4.0

OVERALL RATING

2.9/5.0
  • No credit check necessary to apply. OpenSky believes in giving an opportunity to everyone.
  • The refundable* deposit you provide becomes your credit line limit on your Visa card. Choose it yourself, from as low as $200.
  • Build credit quickly. OpenSky reports to all 3 major credit bureaus.
  • 99% of our customers who started without a credit score earned a credit score record with the credit bureaus in as little as 6 months.
  • We have a Facebook community of people just like you; there is a forum for shared experiences, and insights from others on our Facebook Fan page. (Search “OpenSky Card” in Facebook.)
  • OpenSky provides credit tips and a dedicated credit education page on our website to support you along the way.
Intro (Purchases)
Intro (Transfers)
Regular APR
Annual Fee
Credit Needed
N/A
N/A
18.89% (variable)
$35
Poor
First Progress Platinum Prestige MasterCard® Secured Credit Card Review

at First Progress'ssecure website

SECURED RATING

★★★★
3.9

OVERALL RATING

2.9/5.0
  • Invest your tax refund to improve your credit by making the refundable deposit for your new secured card today
  • No Credit History or Minimum Credit Score Required for Approval
  • Monthly Reporting to all 3 Major Credit Bureaus to Establish Credit History
  • Credit Line Secured by Your Fully-Refundable Deposit of $200 -- $2,000 Submitted with Application
  • Nationwide Program though not yet available in NY, IA, AR, or WI *See Card Terms.
  • Apply in just a few moments with no negative impact to your credit score; no credit inquiry will be recorded in your credit bureau file
Intro (Purchases)
Intro (Transfers)
Regular APR
Annual Fee
Credit Needed
N/A
N/A
9.99% (V)
$49
Bad / No Credit

Call your credit card company and ask. If you’re a good customer, you may be able to get a lower APR just by reaching out and requesting it. If you usually carry a balance and you typically make your payment on time, this one phone call could save you a lot of money and help you pay off your balance sooner.

Pay Your Balance to Avoid Interest Charges

If you don’t carry a balance, APRs aren’t relevant to you. If you do carry a balance, you should pay attention to APRs when you shop for new cards.

A card with a lower APR or 0% balance transfer offer could be a better card for you than one with more perks or rewards. The choice is yours.