What Is APR?

What APR means under the law

Regulation Z, the rule that carries out the Truth in Lending Act, defines the annual percentage rate as “a measure of the cost of credit, expressed as a yearly rate.” It works a little differently for the two main kinds of credit.

Closed-end loans (mortgages, car loans, personal loans) have a fixed amount and a set repayment schedule. Here the APR relates the amount and timing of the money you receive to the amount and timing of your payments (§ 1026.22(a)(1)). It’s built from the finance charge, which is the cost of credit as a dollar amount. That includes interest, plus charges such as points, loan fees, and some insurance premiums that protect the lender (§ 1026.4). A loan with fees therefore has an APR above its interest rate.

Open-end credit (credit cards and lines of credit) has no fixed schedule. For these, the APR you see in disclosures is the periodic rate multiplied by the number of periods in a year (§ 1026.14(b)). A card with a daily periodic rate discloses that rate times 365. Card fees, such as an annual fee, are disclosed separately and aren’t folded into the APR.

That’s why APR and interest rate mean the same number on a card but different numbers on a mortgage.

The five kinds of credit card APR

One card can carry several APRs at once, each on a different part of the balance. Card applications must show them in a standard table (§ 1026.60), with the purchase APR in type at least 16 points in size.

Purchase APR

The rate on everyday purchases. It’s the headline rate, and it’s what most people mean by “my card’s APR.” If you pay the full statement balance by the due date, a grace period usually means you pay none of it on purchases.

Balance transfer APR

The rate on debt moved from another card. Promotional offers, including 0% rates, often apply here. The CFPB notes that a balance transfer fee, a percent of the amount moved, can be charged even on a 0% offer.

Cash advance APR

The rate on cash taken from the card at an ATM or bank. It can be higher than the purchase APR, and cash advances usually have no grace period, so interest starts the day you take the cash.

Penalty APR

A higher rate that can apply after you break the terms, such as paying late. The card’s disclosure table must name the penalty rate, what triggers it, and how long it lasts. Federal rules limit when it can hit your existing balance: only after a minimum payment is more than 60 days late. The issuer must drop it after six on-time minimum payments in a row (§ 1026.55(b)(4)).

Introductory or promotional APR

A lower temporary rate, often 0%, on purchases or balance transfers. The CFPB notes an introductory rate must last at least six months unless you fall more than 60 days behind. When it ends, the remaining balance moves to the regular APR that was disclosed up front.

Fixed and variable APRs

The CFPB describes the APR on most card accounts as two parts: the prime rate, a benchmark most banks use, plus a margin the issuer sets. When the prime rate moves, a variable APR moves with it. The disclosure table must say that the rate can vary and how it’s determined.

How APR turns into a monthly or daily rate

You never pay “the APR” in one charge. The issuer divides it into a smaller rate for each period.

• Monthly rate: APR ÷ 12. Our calculators use this.
• Daily periodic rate: APR ÷ 365. Many card issuers use this. They multiply it by your average daily balance and the number of days in the billing cycle.

The CFPB’s key terms page adds that with a daily periodic rate, each day’s interest is added to the next day’s balance, so interest compounds daily. Over a month the two methods land within a few dollars of each other. How credit card interest works walks through the daily method step by step.

Here is what one month of interest looks like at APR ÷ 12:

What the average credit card APR is today

The Federal Reserve publishes two average card APRs in its G.19 consumer credit release, updated quarterly:

• All accounts: 20.94% as of Q2 2026. This is the average stated APR across all credit card accounts at commercial banks, including cards whose owners pay in full.
• Accounts assessed interest: 22.15% as of Q2 2026. This covers only accounts that were charged interest, and it’s the better guide to what carrying a balance costs.

These averages have climbed. The CFPB reported that the average APR on accounts assessed interest almost doubled, from 12.9% in late 2013 to 22.8% in 2023. It said that was the highest level since the Fed began collecting the data in 1994. The CFPB found that nearly half of the rise over those 10 years came from issuers widening the margin they add to the prime rate.

To see where your own rate falls against these numbers, read what is a good APR for a credit card.

What APR leaves out

APR is a strong comparison tool, but not the whole cost.

• On a card, fees sit outside the APR. Annual fees, balance transfer fees and cash advance fees are listed separately.
• On a card, APR says nothing about your balance. A 29% APR costs nothing if you pay in full each month under a grace period. An 18% APR on a balance you carry for years costs a lot.
• On a loan, not every closing cost is in the APR. Regulation Z leaves some real estate fees out of the finance charge, such as title insurance, appraisal and credit report fees, if they’re bona fide and reasonable (§ 1026.4(c)(7)).

What you actually pay depends on the APR, the balance and how long you carry it. To see all three together, try the credit card payoff calculator.

FAQ

What is APR on a credit card?

It’s the yearly interest rate the card charges on balances you carry, shown as a percentage. A card can have separate APRs for purchases, balance transfers, cash advances, a penalty rate and promotional offers. The issuer divides the APR into a daily or monthly rate to calculate each statement’s interest charge.

Is APR charged monthly?

Interest is billed monthly but usually calculated daily. Most issuers divide the APR by 365 to get a daily periodic rate, apply it to your average daily balance, and multiply by the days in the billing cycle. If you pay the full statement balance by the due date, you usually pay no purchase interest.

How do I avoid paying APR on a credit card?

Pay the full statement balance by the due date every month. With a grace period, purchases then accrue no interest. Cash advances usually have no grace period, so avoid them. If you already carry a balance, interest applies until it’s paid off, and paying earlier in the cycle lowers it.

Why does my credit card have more than one APR?

Issuers price different uses of the card differently. Purchases, balance transfers and cash advances can each have their own rate, and a promotional or penalty rate can apply to part of the balance. Your statement must show each balance category with a different APR and how much of the balance falls in each.

Can my credit card APR go up?

Yes, in limited ways. A variable APR moves with its index, usually the prime rate. A promotional rate ends as disclosed. A penalty APR can apply to an existing balance only after a payment is more than 60 days late. Other increases need advance notice and apply only to new transactions.

What is the average credit card APR right now?

The Federal Reserve’s G.19 release puts the average at 20.94% for all card accounts and 22.15% for accounts charged interest, both as of Q2 2026. It updates these figures quarterly. The rate on accounts charged interest is the better guide to what carrying a balance costs.