APR (Annual Percentage Rate)

What is APR?

APR, or annual percentage rate, is the yearly cost of borrowing money, expressed as a percentage. It includes the interest rate and, for many loans, certain required fees, so it gives a fuller picture of cost than the interest rate alone. On credit cards, APR is the rate you're charged on any balance you don't pay off by the due date.

Key takeaways

• APR is a borrowing cost. Its savings counterpart is APY, which shows what an account earns.
• On a mortgage or personal loan, APR can be higher than the interest rate because it folds in fees like origination charges.
• Credit cards often have several APRs: one for purchases, one for balance transfers, one for cash advances, and sometimes a penalty APR.
• If you pay your full statement balance by the due date, you typically won't pay purchase interest, no matter how high the APR is.

How APR works

Lenders in the U.S. are required to disclose APR so borrowers can compare offers on the same basis. Two loans with the same interest rate can have different APRs if one charges higher fees.

On a credit card, interest is usually calculated daily. The card divides the APR by 365 (some use 360) to get a daily periodic rate, then applies it to your balance each day.

Hypothetical example: You carry a $1,000 balance on a card with an 18% APR for a 30-day billing cycle.

• Daily rate: 18% ÷ 365 = about 0.049% per day
• Interest for the month: $1,000 × 0.18 ÷ 365 × 30 = about $14.79

That may not look like much for one month. But if the balance keeps growing and you only pay the minimum payment, interest keeps compounding on a larger number. The debt payoff calculator shows how long a balance takes to clear at your actual APR.

APRs change with the market and with your credit, so there's no fixed "normal" number. Check your card agreement or statement for your exact rates. The Consumer Financial Protection Bureau explains APR and card terms at consumerfinance.gov.

Why it matters for your Money Type

Priceless Tay uses 4 Money Types to point each person to a different first fix. APR matters most for the Spender, the type whose money slips out through impulse purchases. When those purchases land on a card and the balance rolls over, the APR quietly adds to the price of everything bought. A $60 impulse buy that sits on a card for months ends up costing more than $60. The first fix is one extra pause before checkout, like a 24-hour wait on anything unplanned, so fewer purchases end up carrying interest.

Strategists, who have a plan and want to optimize it, often use APR to rank which debt to attack first, which is the logic behind the debt avalanche.

Common questions

What's the difference between APR and interest rate?

The interest rate is the cost of borrowing the principal. APR includes that interest plus certain fees, expressed as a yearly rate. On most credit cards they're essentially the same, but on mortgages and some loans the APR is usually higher.

What's the difference between APR and APY?

APR is typically used for borrowing and doesn't include compounding. APY is used for savings and includes the effect of compounding, so it shows what you actually earn in a year. Comparing loans? Look at APR. Comparing savings accounts? Look at APY.

Can I avoid paying APR on a credit card?

Usually, yes. Most cards have a grace period, so if you pay the full statement balance by the due date, you don't pay interest on new purchases. Cash advances often start charging interest right away, with no grace period.

Can my APR go up?

It can. Many cards have variable APRs tied to a benchmark rate, so your rate moves when that benchmark moves. A card can also apply a penalty APR after a late payment, as spelled out in your card agreement.