Credit Card APR Explained – What You Need to Know

When you see a credit card ad shouting about rewards, the fine print often hides the APR – the annual percentage rate that tells you how much interest you’ll pay if you carry a balance. Understanding APR helps you avoid surprise fees and decide which card fits your budget.

APR isn’t just a number; it’s the cost of borrowing on a yearly basis, expressed as a percentage. If you pay off the full balance each month, the APR doesn’t matter because you won’t be charged interest. But most people leave a balance occasionally, and that’s when the APR shows up on your statement.

How Credit Card APR Is Calculated

Credit card issuers start with a base interest rate, then add any fees required by law to arrive at the APR. The base rate is often tied to the prime rate or LIBOR, plus a margin that reflects your credit score, income, and payment history. A higher credit score usually means a lower margin and a lower APR.

To see how the APR translates to daily interest, the issuer divides the APR by 365. For example, a 20% APR becomes a daily rate of 0.0548% (20 ÷ 365). If you carry a £1,000 balance, you’ll pay about £0.55 in interest each day, or roughly £16.50 over a month.

Some cards list a “variable APR” that can change when the underlying index moves. Others have a “fixed APR” that stays the same unless the issuer notifies you of a change. Always check whether the APR is promotional (often 0% for a set period) or the standard rate that applies after the promo ends.

Tips to Reduce Your Credit Card APR

1. Boost your credit score. Paying bills on time, reducing existing debt, and limiting new credit applications can lift your score, giving you leverage to ask for a lower APR.

2. Negotiate with your issuer. Call the customer service line, mention a competitor’s lower rate, and ask for a reduction. Many banks will match a better offer to keep you as a customer.

3. Transfer the balance. If you find a card with a 0% introductory APR, move your balance over. Just watch the transfer fees and the length of the intro period.

4. Pay more than the minimum. The faster you chip away at the principal, the less interest you’ll accrue. Even a small extra payment can shave weeks off the repayment schedule.

5. Avoid cash advances. Those usually carry a higher APR and start accruing interest immediately, with no grace period.

By keeping an eye on your APR, using the tips above, and paying more than the minimum, you can keep interest costs low and protect your credit health.

Got more questions about credit card APRs? Check out our related articles on bad APRs for car loans, balance transfers, and ways to improve your credit score. Each piece gives concrete steps you can start using today.