What is a Credit Card APR?

Oct 03, 2025

The interest rate on a credit card is the rate you pay for borrowing money. When it comes to credit cards, you’ll typically see the card's annual percentage rate (APR), rather than the raw interest rate. The APR includes the interest rate as well as fees, so it’s a more accurate representation of the card’s costs.

Let’s look at how a credit card APR works, different types of APRs and tips to avoid paying interest on your credit card.

How does your APR work?

When you buy something on your credit card, you’re borrowing money from the credit card issuer to make that purchase. The APR is the cost of borrowing that money from your issuer.

You typically have a grace period on the credit card purchases made during your billing cycle. The grace period lasts from the end of your billing cycle to your payment due date. You typically won’t be charged interest on those purchases if you pay your balance in full by the due date each month.

However, if you carry a balance on a credit card past the due date, you can lose the grace period and be charged interest on the unpaid balance. You may also pay interest on new purchases, which may begin to accrue as soon as the purchase is made.

Your APR represents the percentage rate you’re charged annually for a specific type of transaction, such as purchases. Other transactions you make with the card may have a different APR.

What influences your credit card APR?

Your credit card APR depends on many factors, such as your creditworthiness as well as the credit card issuer and the credit card you choose. For example, people with higher credit scores may be eligible for lower credit card APRs, and vice versa. Some credit cards may also come with more fees that others, like an annual fee. Since fees are factored into the APR, those credit cards may have a higher APR.

Types of credit card APRs

Different balances can have different APRs. Here are some of the most common ones:

Purchase APR

The purchase APR is the rate applied to purchases made with a credit card. This is the primary APR on a credit card.

Cash advance APR

When you use your credit card to withdraw money from an ATM or other source, you are taking out a cash advance on your credit card. The amount you withdraw will be charged the cash advance APR, which is typically higher than the purchase APR.

While other types of APR, such as purchase APR, can come with a grace period when you’re not charged interest, you typically start accumulating interest immediately on a cash advance.

Penalty APR

Penalty APR is the rate applied if a payment is late or returned. A penalty APR is typically higher than the APR that would otherwise apply on your credit card. It may apply to your current balance or future purchases.

Balance transfer APR

It’s possible to transfer a balance from one card to another (typically for a fee), and those transferred balances might be subject to a different APR. For example, existing cardmembers might be offered a low promotional APR on balance transfers for a set period.

Intro APR

Some credit cards may offer a low introductory APR for purchases, balance transfers or both. Typically, that intro APR will last a certain number of months.

Variable APR vs. fixed APR

There are 2 types of APRs: variable and fixed.

Variable APR

A variable APR means that the APR can change based on market benchmarks, such as the prime rate. That’s the rate that banks charge to their most creditworthy customers.

Credit cards typically have a variable APR.

Fixed APR

A fixed APR generally remains the same over the life of a loan or product. However, the card issuer can change a fixed APR under certain circumstances. In that case, the credit card issuer generally must notify you of a change in the fixed interest rate in advance.

APR vs. APY: What's the difference?

Although these terms sound similar, APR and annual percentage yield (APY) are quite different. While the APR is the annualized cost of borrowing money, an APY is the rate of interest you earn per year on deposit accounts, such as a savings account.

How to avoid paying interest on a credit card

Interest charges can add up over time, but there are ways to avoid paying your credit card APR. The most important factor is that you’re consistently paying off your credit card balance each month on or before the due date. In that case, you typically won’t pay interest on your purchases. Depending on the issuer, you may be able to set up automatic credit card payments to pay off the statement balance due each month.

Certain low intro APR cards may not charge APR if you pay off the balance before the introductory period ends. (Any remaining balance would be subject to the regular credit card APR.) And avoiding options like cash advances, which incur interest immediately, can also help you avoid paying interest.

Credit card APRs can be somewhat confusing. Understanding how they work and when they apply may help you better manage your credit card and leverage it to your benefit.

Disclosure: This article is for educational purposes. It is not intended to provide legal, investment, or financial advice and is not a substitute for professional advice. It does not indicate the availability of any Citi product or service. For advice about your specific circumstances, you should consult a qualified professional.

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