When you’re shopping for a credit card, you’ll hear the term APR over and over. But what exactly does credit card APR mean? Understanding credit card APR is important because it will help you find the best credit card interest rate.

Of course, we know all of this can be confusing, so we put together a guide to help you navigate the world of credit card interest. 

Defining APR

APR stands for Annual Percentage Rate. It’s a number that essentially explains how much you will pay to borrow money. For some credit cards, APR is synonymous with interest rates. And for most credit cards, interest and APR are about the same amount. 

However, for cards with additional fees, the interest rate and APR will be different. APR will include both the interest rate and all those extra fees. So, it’s essential to pay attention when you see APR.

When do You Pay APR for a Credit Card?

With a credit card, remember that, in general, interest will only be charged if you do not pay off your balance in full on or before every due date. So, if you make the minimum payment, you will be charged interest on the remainder of your balance. On the contrary, if you pay your credit card in full and on time every time it’s due, you will not incur interest. Keep in mind, however, when you make a cash advance and/or a balance transfer, you may start incurring interest regardless of whether you have a previous balance or not.

How APR is Determined

APR is calculated by the financial institution based on the US prime rate and a couple of other factors. First, they consider whether the card is secured or unsecured. A secured credit card is one where your credit card limit is typically set by an amount of money that you pay as a deposit. For example, if you pay a $500 deposit, you will have a $500 spending limit on the card. These cards usually have higher APRs. On the other hand, an unsecured card has no deposit, and the APR may be lower. Typically, credit unions have lower APRs than banks. APR will vary from financial institution to financial institution, so be sure to check with their policies.

Sometimes, the APR may be higher if there are additional features or benefits on the card such as rewards, cash back, or other travel perks.

Another significant factor that will determine your APR is your credit score and history. Often, starter cards for people with little to no credit history will have a higher APR. As you build your creditworthiness, you can qualify for cards with a lower APR.

Different Types of APR

Credit cards have more than one type of APR. These values will apply depending on how you use your card.

  • Introductory APR: Some cards offer a lower starting APR, which applies for a limited time.
  • Purchase APR: This is the APR that will apply to all standard purchases on your credit card.
  • Cash Advance APR: If you are borrowing cash instead of buying items, sometimes you will incur a different rate. Cash Advance APR is often times higher than Purchase APR.
  • Penalty APR: This will usually apply if you break the terms of your card. For example, if you fail to make the minimum payment.
  • Balance Transfer APR: If you are transferring balances from other credit cards, you may incur a different rate. 


Credit card APR may also be variable or fixed. Variable APR will fluctuate over time, while fixed APR can stay locked in. Variable rates are typically tied to a financial index. Variable rates can sometimes save you money when interest rates drop, but rising interest rates can also affect the amount you pay on a balance.

How APR is Applied

If you carry a balance on your credit card, APR may be applied to your balance daily or monthly. If the APR is calculated daily, you’ll want to take your total APR and divide it by 365 to find the daily rate. 

Let’s say your daily rate is 0.0005%. If your balance is $300, you’ll pay $0.15 per day or $4.50 in interest over the month.

If your APR is calculated monthly, it’s a similar process. Divide your total APR by 12. Then, multiply this by your monthly balance. This calculation is for illustration purposes only, different financial institutions will determine how the calculation is performed.

Choosing the Best Credit Card for you 

When choosing a credit card, APR is just one factor you want to consider. You’ll also want to decide between a secured vs. unsecured card, any possible rewards, and fees.

Most financial institutions will offer an array of cards to fit your lifestyle. For example, University Credit Union offers several different cards, including, secured, cash back, rewards, and a low rate University Credit Card, all with no annual fees and no foreign transaction fees.

Deciding on a credit card to fit your lifestyle means you’ll want to think about where and how you spend your money. It’s also critical that you read the terms associated with the credit cards you're considering. 

For example, some cards only give rewards on certain purchases — like gas or groceries. University Credit Union’s cash back and rewards cards, however, offer cash back or points for every purchase.

Be sure to consider all of the cards that University Credit Union offers so that you get a card that best fits your spending habits. 

Choosing a credit card may seem like a big decision, but the team at University Credit Union is here to equip you with the know-how to choose wisely and confidently.