APR is the yearly rate of interest a card charges on a balance you don't clear. If you pay your full statement balance by the due date, you usually pay no interest on purchases. The APR only starts to matter when you carry a balance from month to month.
Most cards show more than one APR, because different kinds of borrowing are charged differently. Look for the figure that matches how you'll use the card.
APR vs interest rate
On a credit card, people often use the two terms to mean almost the same thing. The interest rate is what you're charged for borrowing, shown as a yearly figure. Card interest is usually worked out daily on your balance, so the yearly figure is divided up behind the scenes.
With some other products, such as loans, APR can also build in certain charges, so it can be higher than the headline interest rate. That's why APR is useful for comparing offers. When you compare cards, read the terms to see exactly what the APR includes.
The main kinds of APR
Purchase APR
The rate that applies to things you buy with the card. This is the one most people think of. If you clear your statement in full each month, you normally don't pay it.
Balance transfer APR
The rate on debt you move from another card. Many offers start with a low or zero rate for a limited time, and often come with a transfer charge. When the offer ends, the standard rate applies to what's left.
Cash advance APR
The rate for taking cash out on the card. It's often higher than the purchase rate, interest usually starts straight away with no interest-free period, and there can be an extra charge. It's one of the most expensive ways to use a card, so try to avoid it unless you have no other option.
Penalty APR
A higher rate some issuers apply after a serious late payment or other breach of the terms. It's more common in the US. Check the card agreement to see when it could apply and whether it ever drops back down.
Introductory zero-interest offers
A card may offer no interest on purchases or transfers for a set period. It's only a good deal if you can clear the balance before the offer ends. Some store cards use deferred interest, which can charge back interest from the start if you don't clear the balance in time, so read the terms closely.
How interest builds when you carry a balance
When you don't clear the statement, the unpaid balance starts attracting interest. That interest is added to the balance, and then the next round of interest is charged on the larger total. It's interest on interest, and it can add up faster than people expect.
Minimum payments are set low, and a big share of each one can go on interest rather than reducing what you owe. Pay only the minimum and it can take a very long time to clear a balance. In many cards, carrying a balance can also remove the interest-free period on new purchases, so even your next shop can start collecting interest from the day you buy it.
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What you do and what happens to the interest
| What you do | What happens to interest |
|---|---|
| Pay the full statement balance by the due date | Usually no interest on purchases |
| Pay only the minimum | Interest builds on what's left, and the interest-free period may be lost |
| Pay part of the balance | Interest is charged on the remainder |
| Pay late | A late payment charge may apply, and a penalty APR on some cards |
| Take cash out | Interest usually starts immediately at the cash advance rate |
| Transfer a balance | A promotional rate may apply for a limited time, often with a transfer charge |
| The promotional period ends | The standard rate applies to what you still owe |
What decides the APR you're offered
- Your credit history. A record of paying on time usually helps. Missed payments or a thin file can lead to a higher rate.
- Your income and existing debts. Lenders check whether you can afford the borrowing.
- The type of card. Rewards and premium cards often carry higher rates than basic ones.
- Market conditions. Many US cards have a variable APR that follows a benchmark such as the prime rate. In the UK, many cards have rates the provider sets and can change with notice.
- The issuer. Providers set their own rates, so it pays to compare.
If your credit history is limited or damaged, offers tend to be less generous. This guide to rewards cards for low credit scores explains the options and what to watch for.
UK cards: what representative APR means
In the UK, adverts often show a representative APR. That's a rate that more than half of the people accepted for the product are expected to get. Your own offer could be higher, depending on your circumstances. The FCA sets the rules on how it must be shown. Always check the rate you're offered before you accept.
How to avoid paying interest
- Pay the full statement balance by the due date every month.
- Set up a direct debit or automatic payment for the full balance, not the minimum.
- Check your statement date and due date so you're never caught out.
- Avoid cash advances on a credit card.
- Use a zero-interest offer only if you can clear the balance before it ends.
- If you can't pay in full, pay as much above the minimum as you can.
- If you're struggling, talk to your provider early. In the UK, free services such as MoneyHelper and StepChange give debt advice, and in the US, nonprofit credit counselling agencies do the same.
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This is general information, not financial advice. Check the details with a qualified, regulated professional before you decide anything.
Frequently asked questions
Is a high or low APR better?
A lower APR means borrowing is cheaper, so lower is generally better. If you clear your statement in full each month, the APR matters much less.
Do you pay APR if you pay your balance in full?
Usually not on purchases, as long as you pay the full statement balance by the due date. Cash advances and some other transactions can still attract interest, so read your terms.
What is a good APR for a credit card?
There's no single answer. It depends on your credit history, the type of card and the market. Compare offers and use the lowest rate you qualify for, especially if you expect to carry a balance.
Is APR the same as the interest rate on a credit card?
On cards the two are often used to mean nearly the same thing. APR is the yearly rate, and with some products it can also include certain charges. Check how your provider defines it.
