What Is APR on a Credit Card? + How to Calculate and Lower APR

In order to understand the APR meaning of your credit card, let’s learn about the different types of credit card APRs. Depending on your credit card use, the issuer can charge different APRs to determine the interest you have to pay. Here are the most common:¹

As you can see, the amount of interest you pay also depends on the type of credit card APR. We break down each type below.

Purchase APR

The purchase APR is the APR that credit card companies and banks generally refer to when promoting credit cards. As the name suggests, this is the interest rate you pay on transactions that qualify as purchases, including food, a new phone, or your Netflix subscription.

Transactions that don’t count as purchases include cash advances, balance transfers, fees, and refunded purchases.

Introductory APR

Sometimes, to attract new customers to sign up for their credit cards, issuers offer introductory APRs for a limited time. These special interest rates are typically lower than the card’s regular purchase APR, allowing you to save on interest if you plan to make a large purchase and carry a balance.

Balance transfer APR

A balance transfer APR is a promotional APR on some credit cards for transferring your balance from other credit cards. Balance transfer APRs can go as low as 0% and can last anywhere from a few months to a year or more.

Balance transfer APRs can help you combine your credit card debt into a single account, making it easier to pay off your debt while saving on interest.

Cash advance APR

When you use your credit card to purchase from stores, your credit provider gets a percentage of that purchase from the vendor through credit processing fees. But if you use your card to withdraw cash from an ATM, they won’t receive that percentage fee, so your card provider charges a cash advance APR to compensate for the lost income.

You’ll still need to pay the cash advance APR even if you paid your balance before the monthly due date.

Penalty APR

If you missed a credit card payment, your credit provider could charge you a Penalty APR, which can go as high as 30% for at least six months.

If your credit provider did charge you a Penalty APR, you need to make consecutive on-time payments for six months to get rid of this APR under the CARD Act of 2009.