July 31, 2025 · 11 mins read
Santosh Kumar
The present world is changing with so many innovations and techniques that directly impact our lifestyle. One such thing is the advent of credit cards. Ever since they became available, people have begun using them for various purposes. Its demand has grown a lot latter. But have you ever wondered what APR is, on a credit card, and why it is a part of your credit card?
All credit cards have their own APR, which varies depending on multiple factors. It is the amount you pay to banks or financial institutions for allowing you to use their money and repay later. It is not the same in all banks. Each bank has its own APR, and, based on your eligibility, it also varies. So, let's dive in to learn what APR is on a credit card, how it works, and more!
The Annual Percentage Rate (APR) on a credit card is generally an interest rate. You need to pay this every year if you have any balance on your credit card. It refers to the cost of borrowing, including the interest rate on the amount you hold, as well as any other additional fees. Together, they will all be obtained as a yearly rate.
This charge is only applied when you have an outstanding balance without repaying the amount. Additional instances of its charges include cash advances, where you withdraw money from credit cards at ATMs, and late payments of a certain amount. So, APR is calculated in percentages. Here is an example: If your card has a 24% APR and you have a balance of ₹10,000 for a month, you'd pay around ₹197 in interest for that month. Then for a year, it could be charged around ₹2,300. The longer you carry the balance, the more interest you'll be paying to the respective bank.
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When you check the criteria and ways an APR is charged, it is typically either a fixed or variable APR in most cases. They are the most common ways an APR can be calculated and levied. Let’s learn what they are:
The fixed APR is a fixed interest rate applied to a credit card. The interest rate remains the same and doesn’t change over time. Thereby, it offers stability and predictability of your payments.
Variable APRs, on the other hand, tend to vary in their interest rates. It fluctuates and changes over time based on the index rates. Though it may seem lower initially, it carries the risk of an increase in the interest rate over time. Therefore, it becomes a more unpredictable kind of APR.
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Feature: Definition
Fixed APR: Interest rate stays the same
Variable APR: Interest rate changes based on the index rate
Feature: Stability
Fixed APR: Stable
Variable APR: Fluctuates with market changes
Feature: Transparency
Fixed APR: Easier to plan and predict payments
Variable APR: Payments may vary unexpectedly
Feature: Risk Level
Fixed APR: Lower risk; predictable for budgeting
Variable APR: Higher risk; may increase cost over time
Feature: Adjustment Frequency
Fixed APR: Changes rarely; requires prior notice
Variable APR: Can change monthly or quarterly with the market index
Feature: Advantage
Fixed APR: More predictable and stable in the long term
Variable APR: May start lower; can benefit during falling interest rates
Feature: Best For
Fixed APR: People who prefer fixed, stable payment terms
Variable APR: Users are comfortable with some interest rate fluctuation
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APRs are of different types and not restricted to one particular form of imposing the interest rates. Let’s check what those types are since you will have an idea of what APR is on a credit card now: Purchase APR: It is applied to your retail purchases when the balance is not paid entirely by the due date.
Balance Transfer APR: This APR is applicable when you transfer money from another credit card. Cash Advance APR: A higher APR is charged when you withdraw cash using your credit card. Often, it may attract additional fees.
Introductory or Promotional APR: A low APR rate or even 0% rate is charged for new customers. This is typically valid for a fixed time, like 6 to 21 months, on purchases or balance transfers.
Penalty APR: It is applicable when you miss any payments or violate the terms and conditions of your credit card.
The APR on a credit card is used to show the total cost of borrowing on a yearly basis. It is represented in percentages. It also reveals the yearly cost of having an amount on the credit card, showing how much you need to pay back. All of these contribute to the function of APR on a credit card.
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A credit card annual percentage rate is determined and calculated by considering several factors. Those include:
Credit Score: Your credit score reveals your creditworthiness and trustworthiness of repaying the borrowed amount. So, a higher credit score helps you with a lower APR.
Credit Card Type: Your credit score is one of the deciding factors, but the type of credit card you're applying for determines the minimum and maximum rates.
Market Interest Rates: Based on when you are applying for a credit card and the current interest rate, followed by the banks are also considered in calculating your APR. If you are choosing a variable APR, it entirely depends on the market trends.
Before knowing the good APR for a credit card, having an understanding of how a credit card APR rate is determined will help you look for the options to secure a good APR. Here are some of the tips for you to know the good APRs:
A good APR for a credit card refers to the lower APR. In order to get a lower APR rate, you need to have a good credit history and credit score. These are the contributors to the APR rate for your credit card.
Moreover, an APR rate of between 10% and 15% is considered to be good. If the rate is around 9.99%, then that APR is considered to be an excellent offer for your credit card. So, make sure that you are cautious about having a good credit score. If you are someone who is actively building your credit score, then be consistent in improving the score to avail the good APR for your credit card.
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Let's check how an APR on a credit card is calculated in a step-by-step procedure:
For example, let's consider that your APR is 24%. Here is how you can calculate your daily rate: Daily rate = 24 ÷ 365 = 0.0658% per day
₹10,000 × 0.0658% = ₹6.58 interest per day
For interest per month, you need to multiply the interest per day by 30.
₹6.58 × 30 = ₹197.40 interest for the month
₹197.40 × 12 = ₹2368.8 interest per annum
This is how you can calculate your APR.
The 0% APR credit cards are nothing but a credit card with no interest or zero percentage interest. It is typically applicable for the new joining period, which is often called the promotional period. It ranges from six to twelve months. In this period, you can borrow money and make purchases as you want without any interest. However, once this period ends, the 0 APR credit card option will come to an end, and you will be charged for the APR.
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You can easily escape from the APR on your credit card if you are following some smart steps. Here are those steps for you:
To avoid paying the APR, you can try to pay your complete balance each month. This will make your interest 0% and thereby, you can avoid it altogether. If you are unable to pay it completely, you can pay as much as possible so that you can have a lower interest rate to pay.
Another effective way to lessen your interest rate is to pay more than the minimum payment. This will reduce your principal balance and eventually your interest amount.
You can avoid withdrawing cash using your credit card. This will reduce your APR since cash advances pay way for high interest rates.
As an introductory bonus, you will have 0% APR period for some time. You can use it until the time expires.
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The Annual Percentage Rate (APR) has a significant impact on your financial status and credit card history. You might not avoid it entirely, but you can take all the necessary steps to lessen the rate at which you need to pay over time. By becoming aware of how it works and what is affected by it, you can convert using your credit card wisely, avoiding paying higher APR. Start making the APR work for you instead of against you with smart steps and actions.
You can easily avoid your APR by paying your entire statement balance every month without any balance left. Additionally, you can avoid cash advances, as they can increase your APR. You can also manage your credit card spending and take advantage of the 0% APR period.
Yes, you can ask your bank to reduce your APR if you have a good repayment history and consistently make all payments on time. You also need to have a good credit score for the bank to negotiate with you before lowering your APR.
When you are not paying the full balance and making only the minimum payment, the APR will be calculated for the remaining amount that needs to be paid. Here, APR will be charged daily, and you will need to repay the amount with this APR.
No, APR is not charged every month, but it is calculated on a monthly basis. The interest will be calculated daily, then converted into a monthly interest payment. Those are added together and charged as APR.
The answer is no. This is because you won't be charged for the APR if you make the payments on time. So, whenever you pay the entire credit card balance on time every month and there are no cash advances on your credit card, you can be free from APR. If not, during the introductory period of 0% APR, you won't have to pay any APR.
No, APR doesn't affect your credit score, as it is not a deciding factor in calculating your credit score. However, the way you manage your credit and debts can influence your credit score. Those factors come under APR too. So, as a whole, it doesn't directly impact your credit score; however, it may indirectly affect it.
The grace period on a credit card allows you to pay your full balance amount without incurring any interest. This period is between your end of your billing cycle and the payment due date.
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