What does APR on credit cards mean?

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APR stands for Annual Percentage Rate. It indicates the amount of interest a credit card charges on your account balance each year. To figure your daily interest rate, simply divide your APR by 365.

Determining Factors

Your credit history largely determines your APR. Good credit ratings typically yield low APRs. Bad or no credit history results in high APRs.

Types

There are two types of APRs, fixed rate and variable rate. With a fixed rated APR, the annual percentage rate on that line of credit does not change without prior notification. With variable rates, the annual percentage rate changes in accordance with another interest rate (the Treasury bill rate, for example).

Application

Many times you have different APRs that apply to different applications. For instance, your credit terms may apply one APR to purchases, a different APR for cash advances, yet another APR for balance transfers, a penalty APR for late payments, a tier system that assigns a special APR for outstanding balances within certain monetary ranges, and so on. It's important to read the terms of your credit card agreement very carefully.

Other Important Terms

Your "grace period" indicates the number of days you have to pay your credit balance in full before you incur a financial charge.

Other Considerations

With credit cards, the interest charged on any outstanding balance carried over passed your grace period becomes a part of your principle amount. Therefore you don't just accrue interest on your initial purchases, you also accrue interest on your outstanding interest charges in what's called compound interest.

Source:

Federal Reserve

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What does APR on credit cards mean?

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