What is APR? seems to be the question on the lips of most credit card users as well as those who intend to use credit cards. Before you make a choice of a credit card, it is important to know what an apr is. At some point in your life, you may need to borrow with a credit card which implies you need to understand how much you pay in interest and other fees.what is apr

What is APR?

APR is the annual percentage rate (APR), which explains how much you pay on your balance.

Why Use APR?

APR enables you to get a side-by-side comparison of loans by accounting for every cost related to borrowing.

APR, helps you determine which loan offer is best suited for you.

What are APR | Types of APR

Purchase APR: This is the rate applied to the credit card purchases.

Cash Advance APR: The cost of borrowing cash from your credit card.

Penalty APR: This is the highest APR. It may be applied to certain balances when you violate the card terms and conditions which may be failing to make payments on time.

Introductory APR: (or promotional APR) This features a lower APR for a limited time period.

What is Average APR Nationwide?

According to The Federal Reserve, the average credit card APR is 14.73% as at year-end 2018. Minus the customers who pay no interest on their cards, the average rate is 16.86% APR.

Things You Need to Know About Average Rates

It is very pertinent to get the following information about any credit card you wish to apply, so you know what you are actually signing up for.

Annual Fee: If the card you wish to apply for charges an annual fee, it means that’s another cost of borrowing (or just having a card). Depending on the fee charged, the card may actually be useful or pose a burden to you. If the fee is small as compared to your spending and the benefits that accrue with the card, it may actually be useful. If the fee is the other way round (I.e.) culminating into hundreds of dollars then you better have a rethink.

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Grace Period: Once you consistently pay off your balance every month, you may not pay any interest regardless of your APR.

Multiple APRs: Your credit card may have multiple APRs. This means you have to understand which one you’ll pay before you use your card. Your true costs interest is dependent on how you use your card.

What do You Qualify For?: People with high credit scores and a regular source of income can easily qualify for low-rate cards. But people with low credit scores will probably get offers with relatively high-interest rates.

APR Calculator How to Calculate APR & Interest

Calculating APR and interest is essential so as to understand how much you are actually paying and how much you can save with a different APR. Note, the exact calculation varies from issuer to issuer. You can still use the steps below to gain knowledge on how to calculate.

  • Begin with the annual rate
  • Then, convert it to a daily rate: Divide the annual rate by 365.
  • Multiply the daily rate by your account balance: here now is your interest charge for the day.


Your credit card issuer may add the interest charge to your balance daily, which may cause your balance to shoot up every day. If this is the case, repeat the steps outlined above after adding the day’s interest charge and start over with the new balance.

To make this process easy, estimate your monthly charges instead of using a daily calculation. Do this by dividing your APR by 12 instead of 365 and calculate monthly interest charges. But if you need exact numbers, you will have to follow your issuer’s process, which is outlined in your card’s terms and conditions.