What is APR (Annual Percentage Rate)?

APR stands for “Annual Percentage Rate” and is used to calculate how much interest you will pay on your credit card each month. APR is designed to make it easier for you to compare the pros and cons of various credit card companies, and can allow you to see roughly how much interest you may pay each month.

Annual Percentage Rates only apply to you if you fail to pay back your credit card balance on time every month. Any outstanding unpaid credit card balance will be subject to APR interest rates, and you will be charged APR interest if you only pay the minimum on your credit card balance every month. Credit card companies profit from people who fail to meet their payments by charging them interest in the form of APR. Individuals who pay their credit card balance in full (and on time) will not be charged any form of APR or interest.

Your APR is calculated by credit card companies when you apply for credit. Credit card companies take both your credit score and credit report into account when deciding upon your Annual Percentage Rate. Those with higher credit scores will see lower APRs (they will be charged less interest) whereas those with lower credit scores will see higher APRs (they will be charged more interest). Credit card companies use this information to assess whether you will be a high-risk or low-risk cardholder, and adjust your Annual Percentage Rate accordingly.

The term “Annual Percentage Rate” can be misleading, however, because the rate isn’t exactly calculated yearly as the name suggests. So, just how is APR calculated?

Well, credit card companies take into account how much money you owe them on average for each day during your billing period. This is then multiplied by your Daily Periodic Rate. Your Daily Periodic Rate is essentially your APR divided by 365 (for the 365 days of the year). This allows credit card companies to figure out how much to charge you each day. They then multiply this number by the number of days in your billing period. This is the amount of interest they charge you at the end of each month.

APR also includes any compulsory fees that you may have to pay to your credit card provider, and therefore may include an annual credit card fee if you are required to pay one.

Annual Percentage Rates can be difficult to understand for many consumers, and you should be able to contact your credit card company and ask for a price breakdown if you’re unsure about how much interest you are going to be charged in a billing period.

The average APR is around 15% in the United States, although Annual Percentage Rates can vary significantly based on your credit score, credit report, and credit card company of choice. They are also likely to vary from place to place, with certain countries and regions having higher or lower APRs than others (on average).