What Exactly Is Credit Card APR? And Does It Really Matter?

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If you’ve ever shopped around for a credit card, then you’ve probably seen promotional APR offers. These tend to say things like “0% introductory APR!” and “no interest for the first 12 months!”

But how exactly does an APR work, and is it actually important when choosing a credit card? Well, the answer might surprise you. Here’s everything you need to know about credit card APR.

What is a credit card APR?

APR stands for annual percentage rate. It essentially describes how much interest you’ll pay on outstanding balances.

As of a few years ago the national average credit card APR is 15.07%. So if you have a 15.00% APR, then you can expect to pay interest valued at 15 percent of your unpaid debt over the course of a year.

Sounds simple, right?

Well, that’s not quite the whole story. An APR gives us a general sense of our yearly interest rate. But with credit cards, we don’t pay interest on a yearly basis.

Instead, credit card interest is calculated every day with a daily periodic rate. To calculate most daily periodic rates, you divide the APR by 360 or 365, depending on the credit card issuer.

Therefore, using the above example, a credit card with a 15.00% APR that’s divided by 365 has a daily periodic rate of 0.041%.

This daily accumulating interest will stick to any unpaid balance at the end of the month. And since interest is calculated every day, the longer you wait to pay off your credit card debt, the more interest you’ll end up paying.

So does your APR stay fixed, or can it change from year to year? Well, that all depends on whether you have a fixed APR or a variable APR.

How to compare fixed vs. variable APR

As the terms suggest, variable APRs can fluctuate while fixed APRs tend to stay the same. Each credit card company calculates its own annual percentage rate.

To determine a variable APR, a card issuer adds its margin to a reference rate, like the U.S. Prime Rate. As of December 2016, the U.S. prime rate was 3.75%.

When the prime rate changes, variable APRs change with it. Therefore, credit card companies update variable APRs on a monthly or quarterly basis.

A fixed APR, on the other hand, doesn’t rely on the U.S. prime rate. It’s more stable, though companies can make changes from time to time. They just have to tell you first.

One credit card can have several APRs

Not only are there two types of APRs, there can also be several different APRs attached to a single credit card.

If you’ve used a credit card before, you know you can do more with it than make purchases. You can also get a cash advance or make a balance transfer.

Most credit cards have different APRs for each type of transaction. They may also have a promotional APR, like a 0% balance transfer offer that lasts for several months after opening.

A credit card could have a penalty APR as well. A penalty APR charges extra if you violate the terms of the credit card agreement.

To gain a clearer sense of all these interest rates, let’s take a look at the Chase Freedom Unlimited card. Here are its three main APRs as of this article’s publication, all of which are variable.

  • Purchase APR: 0% Intro APR for the first 15 billing cycles that your account is open. After that, it’s 14.49% to 23.49%, based on your creditworthiness. This APR will vary with the market based on the Prime Rate.
  • Balance Transfer APR: 0% Intro APR for the first 15 billing cycles that your account is open. After that, 14.49% to 23.49%, based on your creditworthiness. Again, these APRs will vary with the market based on the Prime Rate.
  • Cash Advance APR: 25.49%. This APR will vary with the market based on the Prime Rate, too.

Where do these APRs come from? Chase explains: “We add 10.74% to 19.74% to the Prime Rate to determine the Purchase/Balance Transfer APR. We add 21.74% to the Prime Rate to determine the Cash Advance APR.”

For more details on the Chase Freedom card or to browse other credit cards offers, check out the Student Loan Hero Marketplace. You’ll see that the marketplace credit cards, like Chase Freedom, give a range of rates “based on your creditworthiness.”

Why your APR depends on your creditworthiness

You and your friend may both have a Chase Unlimited Freedom card, but you could have two different APRs. Why is that the case?

Issuers offer you a credit card APR based on your “creditworthiness.” Therefore, when you apply, they take a hard look at your credit score.

As you may know, your credit score is based on a number of factors, including your repayment and credit history. The stronger your credit score is, the lower your APR will be. If you have a weak credit score, then you’ll get slapped with a high APR.

Does credit card APR really matter?

While it’s great to understand all these terms before committing to a credit card, how important is credit card APR? Should it really determine what credit card you choose?

Here’s the thing about credit cards — even a relatively low APR is pretty high. Credit card interest rates are so heavy, you want to do everything you can to avoid credit card debt.

A good rule of thumb is this: don’t spend more than you can pay off every month.

If you follow this rule, then you’ll never have to deal with worrying about an APR. You’ll pay off your purchases in full, so interest becomes a non-issue.

Then, instead of worrying about the APR, you can look at other parts of a credit car offer. For instance, you could choose a credit card based on rewards like cash back or travel points.

That being said, promotional periods of 0% APR can be useful if you need to make a big purchase and pay it back in installments. I bought a Macbook Air during a promotional period, and I was able to pay it back over several months without incurring any interest.

The bottom line is if you’re using a credit card, you shouldn’t carry a balance over from month to month. Then, you don’t have to worry about APR at all.

In effect, your APR will always stay at 0%, right where you want it.

Looking to open a new credit card? This guide will help you choose the best credit card for your spending habits.

Interested in a personal loan?

Here are the top personal loan lenders of 2018!
LenderAPR RangeLoan Amount 
1 Includes AutoPay discount. Important Disclosures for SoFi.

SoFi Disclosures

  1. Personal Loans: Fixed rates from 6.990% APR to 14.865% APR (with AutoPay). Variable rates from 6.255% APR to 12.555% APR (with AutoPay). SoFi rate ranges are current as of September 1, 2018 and are subject to change without notice. Not all rates and amounts available in all states. See Personal Loan eligibility details. Not all applicants qualify for the lowest rate. If approved for a loan, to qualify for the lowest rate, you must have a responsible financial history and meet other conditions. Your actual rate will be within the range of rates listed above and will depend on a variety of factors, including evaluation of your credit worthiness, years of professional experience, income and other factors. See APR examples and terms. Interest rates on variable rate loans are capped at 14.95%. Lowest variable rate of 6.255% APR assumes current index rate derived from the 1-month LIBOR of 2.08% plus 4.425% margin minus 0.25% AutoPay discount. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account.

    To check the rates and terms you qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull.See Consumer Licenses.
  2. Minimum Credit Score: Not all applicants who meet SoFi’s minimum credit score requirements are approved for a personal loan. In addition to meeting SoFi’s minimum eligibility criteria, applicants must also meet other credit and underwriting requirements to qualify.
  3. SoFi Personal Loans are not available to residents of MS. Maximum interest rate on loans for residents of AK and WY is 9.99% APR, for residents of IL with loans over $40,000 is 8.99% APR, for residents of TX is 9.99% APR on terms greater than 5 years, for residents of CO, CT, HI, VA, SC is 11.99% APR, and for residents of ME is 12.24% APR. Personal loans not available to residents of MI who already have a student loan with SoFi. Personal Loans minimum loan amount is $5,000. Residents of AZ, MA, and NH have a minimum loan amount of $10,001. Residents of KY have a minimum loan amount of $15,001. Residents of PA have a minimum loan amount of $25,001. Variable rates not available to residents of AK, TX, VA, WY, or for residents of IL for loans greater than $40,000.
  4. Terms and Conditions Apply: SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi’s underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Financing Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (www.nmlsconsumeraccess.org)

2 Includes AutoPay discount. Important Disclosures for Payoff.

Payoff Disclosures

  1. All loans are subject to credit review and approval. Your actual rate depends upon credit score, loan amount, loan term, credit usage and history. Currently loans are not offered in: MA, MS, NE, NV, OH, and WV.

3 Important Disclosures for FreedomPlus.

FreedomPlus Disclosures

  1. All loans available through FreedomPlus.com are made by Cross River Bank, a New Jersey State Chartered Commercial Bank, Member FDIC, Equal Housing Lender. All loan and rate terms are subject to eligibility restrictions, application review, credit score, loan amount, loan term, lender approval, and credit usage and history. Eligibility for a loan is not guaranteed. Loans are not available to residents of all states – please call a FreedomPlus representative for further details. The following limitations, in addition to others, shall apply: FreedomPlus does not arrange loans in: (i) Arizona under $10,500; (ii) Massachusetts under $6,500, (iii) Ohio under $5,500, and (iv) Georgia under $3,500. Repayment periods range from 24 to 60 months. The range of APRs on loans made available through FreedomPlus is 4.99% to a maximum of 29.99%. APR. The APR calculation includes all applicable fees, including the loan origination fee. For Example, a four year $20,000 loan with an interest rate of 15.49% and corresponding APR of 18.34% would have an estimated monthly payment of $561.60 and a total cost payable of $7,948.13. To qualify for a 4.99% APR loan, a borrower will need excellent credit on a loan of $15,000 with a term of 24 months, and qualify for at least two of the following discounts: (1) add a co-borrower who has sufficient income; (2) use at least fifty percent of the loan proceeds to directly pay off existing debt; or (3) show proof of having at least forty-thousand dollars in retirement savings – contact FreedomPlus for further details.

4 Important Disclosures for Citizens Bank.

Citizens Bank Disclosures

  1. Personal Loan Rate DisclosureFixed interest rates from 6.49% – 19.49% (6.49% – 19.49% APR) based on applicable terms. Lowest rates range from 5.99%-18.99% (5.99%-18.99% APR), are for eligible applicants, require a 3-year repayment term, and include our Loyalty and Automatic Payment Discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment Discount disclosures. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.
  2. Loyalty Discount: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower has a qualifying account in existence with us at the time the borrower has submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, student loans or other personal loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI and VT. This discount will be reflected in the interest rate and Annual Percentage Rate (APR) disclosed in the Truth-In-Lending Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan, and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
  3. Automatic Payment Discount: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their Citizens Bank Personal Loan during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account two or more times within any 12-month period, the borrower will no longer be eligible for this discount.

5 Important Disclosures for LendingPoint.

LendingPoint Disclosures

  • Loan approval is not guaranteed. Actual loan offers and loan amounts, terms and annual percentage rates (“APR”) may vary based upon LendingPoint’s proprietary scoring and underwriting system’s review of your credit, financial condition, other factors, and supporting documents or information you provide. Origination or other fees from 0% to 6% may apply depending upon your state of residence. Upon LendingPoint’s final underwriting approval to fund a loan, said funds are often sent via ACH the next non-holiday business day. LendingPoint makes loan offers from $2,000 to $25,000, at rates ranging from a low of 15.49% APR to a high of 34.49% APR, with terms from 24 to 48 months. The loan offer(s) shown reflect a 28 day payment cycle which is being offered as a courtesy as many of our customers are paid on a biweekly schedule and thus this may better align the loan payment dates with your actual income receipt schedule.

6 Important Disclosures for LendingClub.

LendingClub Disclosures

All loans made by WebBank, Member FDIC. Your actual rate depends upon credit score, loan amount, loan term, and credit usage & history. The APR ranges from 6.16% to 35.89%. For example, you could receive a loan of $6,000 with an interest rate of 7.99% and a 5.00% origination fee of $300 for an APR of 11.51%. In this example, you will receive $5,700 and will make 36 monthly payments of $187.99. The total amount repayable will be $6,767.64. Your APR will be determined based on your credit at time of application. The origination fee ranges from 1% to 6% and the average origination fee is 5.49% as of Q1 2017. There is no down payment and there is never a prepayment penalty. Closing of your loan is contingent upon your agreement of all the required agreements and disclosures on the www.lendingclub.com website. All loans via LendingClub have a minimum repayment term of 36 months or longer.


7 Important Disclosures for Earnest.

Earnest Disclosures

  1. Earnest does not lend in Alabama, Delaware, Kentucky, Nevada, or Rhode Island.

8 Important Disclosures for Avant.

Avant Disclosures

* The actual rate and loan amount that a customer qualifies for may vary based on credit determination and other factors. Funds are generally deposited via ACH for delivery next business day if approved by 4:30pm CT Monday-Friday. Avant branded credit products are issued by WebBank, member FDIC.

** Example: A $5,700 loan with an administration fee of 4.75% and an amount financed of $5,429.25, repayable in 36 monthly installments, would have an APR of 29.95% and monthly payments of $230.33


* Important Disclosures for Upgrade Bank.

Upgrade Bank Disclosures

* Your loan terms are not guaranteed and are subject to our verification and review process. You may be asked to provide additional documents to enable us to verify your income and your identity. This rate includes an Autopay APR reduction of 0.5%. By enrolling in Autopay your payments will be automatically deducted from you bank account. Selecting Autopay is optional. Annual Percentage Rate is inclusive of a loan origination fee, which is deducted from the loan proceeds. Late payments or subsequent charges and fees may increase the cost of your fixed rate loan. All loans made by WebBank, member FDIC. Please refer to Upgrade’s Terms of Use and Borrower Agreement for all terms, conditions and requirements.

** Accept your loan offer and your funds will be sent to your bank via ACH within one (1) business day of clearing necessary verifications. Availability of the funds is dependent on how quickly your bank processes this transaction. From the time of approval, funds should be available within four (4) business days.

7.73% – 29.99%$1,000 - $50,000Visit Upstart
6.26% – 14.87%1$5,000 - $100,000Visit SoFi
6.99% – 35.97%*$1,000 - $50,000Visit Upgrade
5.99% – 24.99%2$5,000 - $35,000Visit Payoff
4.99% – 29.99%3$10,000 - $35,000Visit FreedomPlus
5.99% – 18.99%4$5,000 - $50,000Visit Citizens
15.49% – 34.49%5$2,000 - $25,000Visit LendingPoint
6.16% – 35.89%6$1,000 - $40,000Visit LendingClub
6.99% – 18.24%7$5,000 - $75,000Visit Earnest
9.95% – 35.99%8$2,000 - $35,000Visit Avant
Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print understand what you are buying, and consult a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time. Please do your homework and let us know if you have any questions or concerns.