The Annual Percentage Rate (APR) is one of the most important terms to understand in credit cards. APR represents the yearly cost of borrowing if you carry a balance on your card. For example, an APR of 18% doesn’t mean you’ll be charged 18% each month—it means that spread across the year, the cost is equivalent to 18%. In practice, card issuers calculate daily interest using a daily periodic rate (APR divided by 365). That daily interest is then applied to your average daily balance. This structure means that even carrying a balance for part of a billing cycle can generate significant charges.

APRs vary depending on the card, your creditworthiness, and the type of transaction. Purchases, balance transfers, and cash advances may all have different APRs. Some cards offer promotional 0% APR periods, but once those expire, the rate reverts to the standard APR. Unlike mortgages or auto loans, credit card APRs are variable, tied to benchmark rates like the prime rate. This means they can rise with changes in the economy. Understanding APR is crucial: while rewards cards might offer enticing perks, their higher interest rates make carrying a balance far more expensive.