APR stands for Annual Percentage Rate — the yearly interest rate you are charged for carrying a balance on a credit card. The most important thing to know: if you pay your statement balance in full every month, you generally pay no interest at all.
How credit card interest is charged:
- Card issuers usually convert the APR into a daily periodic rate (the APR divided by 365) and apply it to your balance each day.
- Because the interest is added to the balance, it typically compounds — you can owe interest on interest.
- Interest applies only when you carry a balance past the grace period.
A card can have more than one APR:
- Purchase APR — applies to everyday purchases you do not pay off.
- Balance transfer APR — applies to transferred balances.
- Cash advance APR — usually higher, and typically with no grace period, so interest starts immediately.
- Penalty APR — a higher rate some cards apply after a missed payment.
Many credit card APRs are variable, meaning they move with a published index such as the prime rate.
How to avoid card interest: pay your full statement balance by the due date every month. If you do carry a balance, paying more than the minimum reduces the interest you owe. Your exact APR is disclosed before you open any RMO credit card.