# How Does Credit Card APR Work?

If you’re confused about credit card APR and how it works, you’re not alone. In this blog post, we’ll explain everything you need to know about APR, including how it’s calculated and how it can affect your finances.

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## What is APR?

APR, or Annual Percentage Rate, is the interest rate that credit card companies charge on unpaid balances. It’s important to understand how APR works because it can have a big impact on your credit card bill. APR is usually expressed as a percentage and it’s calculated by the day.

### APR vs. interest rate

Annual Percentage Rate (APR) is the cost of borrowing money, expressed as a percentage of the total loan amount. It includes both the interest rate and any fees charged by the lender. The APR is the “true” cost of borrowing money, which makes it useful for comparison shopping.

Interest rate is simply the percentage of the loan amount charged by the lender for borrowing money. It does not include any fees charged by the lender. Therefore, the interest rate is lower than the APR.

### How is APR calculated?

Annual Percentage Rate (APR) is the yearly rate of interest that you pay on a loan or credit card. It’s important to understand how APR works because it can affect how much you pay back in interest and fees.

The APR is calculated by adding the amount of interest you’ll pay over the course of a year, plus any additional fees, to the amount you borrowed. The APR is expressed as a percentage, so it’s easy to see how much it will cost you to borrow money or use a credit card over time.

For example, let’s say you have a credit card with an APR of 15%. That means that if you make a purchase on your credit card, you’ll be charged 15% interest on that purchase annually. So if you spend \$100 on your credit card, you’ll owe \$115 in interest and fees after one year.

The APR is important to consider because it can affect the total cost of your loan or credit card. For example, a loan with a lower APR will generally cost less than a loan with a higher APR over time. And if you carry a balance on your credit card, a higher APR will mean that you pay more in interest and fees over time.

When shopping for loans or credit cards, be sure to compare APRs so that you can get the best deal possible.

## How does APR affect credit card holders?

APR, or annual percentage rate, is the interest rate that is applied to a credit card balance. It can be either be a fixed rate or a variable rate. If you have a balance on your credit card, the APR will determine how much interest you will pay on that balance. Most credit card companies charge a higher APR for cash advances and balance transfers. The APR can also vary depending on the type of credit card you have.

### Minimum payments

Minimum payments are the smallest amount you can pay on your credit card bill each month. Your minimum payment is calculated as a percentage of your current balance, plus any interest and fees that have accrued. For example, if your current balance is \$500 and your monthly APR is 2%, your minimum payment would be \$10 (\$500 x 0.02 = \$10).

Minimum payments are designed to keep you in debt for a long time, because the longer it takes you to pay off your debt, the more interest you will accrue. That’s why it’s important to understand how APR works and to always pay more than your minimum payment each month.

### Finance charges

Finance charges are the fees charged by a credit card issuer for the use of a credit card. These charges can include an annual fee, late payment fees, over-the-limit fees, and cash advance fees. The Annual Percentage Rate (APR) is the rate at which finance charges accrue. For example, if your APR is 16%, you will be charged finance charges of \$16 for every \$100 you spend on your credit card.

## How to avoid paying interest on your credit card

### Understand your credit card statement

When you get your monthly credit card bill, it’s important to understand all the information provided. The statement will list all transactions made on the account during the billing period, including any interest or fees charged. It will also list the minimum payment due.

Paying only the minimum payment each month will result in paying interest on your balance, as well as prolong the time it takes to pay off your debt. If possible, try to pay more than the minimum payment each month. Doing so will help you pay off your debt faster and save money on interest.

Your credit card statement will also list any rewards you may have earned during the billing period. Be sure to check this carefully so you can redeem your rewards before they expire.

### Pay your balance in full each month

If you carry a balance on your credit card from month to month, you will be charged interest on that balance. The APR for purchases is the rate of interest you’ll pay on any money you spend on your card.

To avoid paying interest on your credit card balance, you can pay off the full balance each month. This means that you will only be charged interest on any new purchases you make during the month. If you have a good credit history, you may be able to take advantage of a 0% APR introductory offer from your credit card issuer. This means that you will not be charged any interest on your balance for a period of time (usually 6-18 months).

Another option is to transfer your balance to a 0% APR balance transfer credit card. This can help you save money on interest if you are able to find a card with a 0% intro APR period that is long enough to allow you to pay off your balance before the intro period ends. Just be sure to read the fine print carefully, as some cards may charge a balance transfer fee of 3-5% of the amount being transferred.

### Know when your grace period ends

Your credit card’s grace period is the time you have to pay your bill in full without incurring interest charges. If you carry a balance from month to month, you’ll lose your grace period and will be charged interest on new purchases (and often on your outstanding balance) immediately.

Most credit cards have a grace period of 21-25 days. You can usually find your card’s grace period in the terms and conditions, or by calling customer service.

To avoid paying interest, you’ll need to make sure you pay off your balance before the end of your grace period. Depending on when your credit card statement closes, this may mean making your payment as soon as you get your bill.