Credit Card APR: What Is APR in Credit Cards & How It Works
  • Personal
  • Business
  • Corporate
  • Private Banking
  • Privy League
  • NRI Services
  • Investors
  • Personal
  • Business
  • Corporate
  • Private Banking
  • Privy League
  • NRI Services
  • Investors
Apply Now
21 NOVEMBER, 2022

To begin with, APR's full form in banking is the Annual Percentage Rate. It is the cost of borrowing money on a credit card. The colloquial APR meaning is the yearly interest rate the cardholder will have to pay if their card carries a balance. Since the process heavily depends on the lender or card issuer, the APR interest rates can vary widely.

APR credit cards can have a variable or fixed nature. Moreover, the higher your credit score, the lower the annual percentage rate on your credit card. It is also important to know that annual or additional fees attached to a bank transfer, cash advance, or late payments for your credit card are not included in the APR.

Since the interest rates are typically handled yearly, the Annual percentage rate makes sense for them. Remember that you can seamlessly dodge interest on purchases if you timely pay your monthly balance.

What is APR?

APR stands for Annual Percentage Rate. It is a standard measure of the cost of borrowing money, expressed as a percentage. This rate includes all fees and costs associated with the loan or credit card, making it a more accurate representation of the true cost of borrowing.

In simpler terms, APR is the yearly interest rate that you pay on top of the amount borrowed from a lender. It is a key factor in determining the overall cost of a loan or credit card, as it considers not just the interest rate but also factors such as origination fees, closing costs, and other charges.

What is APR in Credit Card?

In the context of credit cards, APR refers to the annual percentage rate that is charged on any outstanding balances on the card. This includes interest charges as well as any fees associated with the use of the card, such as annual fees or balance transfer fees.

It is important for credit card users to pay attention to their APR, as it can greatly affect the total cost of using the card. Higher APRs mean higher interest charges, which can quickly add up if you carry a balance on your card.

In addition, credit card APRs can vary based on different factors such as credit score, type of card, and promotional offers. It is always wise to compare and choose credit cards with lower APRs to save money in the long run.

How Annual Percentage Rate Work?

An annual percentage rate or APR is the total rate of interest charged on your credit card for a whole year. Credit card companies gives users a grace period to avoid interest payments and pay the due credit card bill. But if they fail to do so, the interest applies to your due balance. The user can see the applied APR on their credit card statement. Try to clear the outstanding due balance and the applied interest in the next billing cycle to avoid increasing APR.

How is Fixed APR Different From Variable APR?

Now that the concept of APR has been established, let's understand how Fixed APR differs from Variable APR. As is fairly evident from the name, a Fixed APR rarely changes except when the payment is late or a promotional deal has expired. Therefore, a fixed rate has the advantage of locking in your rate for a set amount of time.

Because you know the rate will typically be constant, it simplifies budgeting for your payments. Due to some of these advantages, fixed-rate cards are getting more difficult to find. One must note that given prior intimation, the card issuers are free to alter a fixed rate at their will.

You will often observe that your credit card will have a variable APR within a predetermined range. Lenders and borrowers widely use a prime rate to standardise and establish interest rates on loans, mortgages and credit cards. A variable PR fluctuates following this prime rate.

One can clearly understand that a variable rate APR might not possess the same level of certainty as a fixed rate APR. However, the former does house the potential to be less expensive.

How Banks Calculate APR and Interest

You should remember that a thorough inquiry into your credit score will be conducted by the bank or credit card company when you apply for a credit card. Once your prerequisite credit card eligibility has been met, the determination of your credit card's APR will be heavily influenced by your credit score. The likelihood that the issuer will offer you a credit card with a lower APR increases if your credit score is exceptional or decent; on the other hand, a low score will result in a higher APR.

Let's assume you are making positive leaps towards improving your credit score through various avenues. In that case, you can always ask your credit card issuer to re-evaluate the APR if the change in your score seems considerable. Drawing parallels, if you're making the minimum payments and barely getting by, the extended credit will be subject to a high APR.

The mathematics for calculating the Annual Percentage rate is pretty straightforward. If the monthly interest rate stands at 3%, the APR will be 36% (12 times 3).

You can easily calculate the interest by dividing the card's APR (let's suppose 15%) by 365 to get the daily rate (0.0410%). Assuming you have an average balance of $2,000 during a 25-day billing cycle, the The formula determines how much interest you owe on your outstanding balance varies by bank. It is advisable to analyse the cardholder agreement carefully and the monthly statement to better understand APR dynamics. Also, it is possible that one account can possess multiple APRs, and in that case, the above calculation applies to all of them.

Read Also: National Electronic Funds Transfer

Different Types of APR

Even though purchase APR is the most popular, other types of APR exist. Let's know more about them.

  • Purchase APR: It is the most popular and widely known of all its counterparts. Its interest rate is applied to all credit card purchases, whether in person, online or over telephone calls.
  • Introductory APR: As the name suggests, introductory APR resembles the promotional interest rate, which exists for a limited period. It is a relatively lower rate than usual until the introductory tenure lasts. Such an introductory APR is restricted to only certain bank transfers and cash transactions.
  • Cash Advance PR: In simple terms, Cash Advance APR is the rate levied when you borrow cash from a credit card. It is usually higher than the standard purchase APR with no grace period whatsoever.
  • Penalty APR: are levied when you violate the card's TnC by failing to make on-time payments. Missed or returned payments usually mean that you'll have to make up multiple on-time payments to have the penalty APR removed. It is the highest APR of all the ones mentioned.

How much could you end up spending on APR?

As the APR includes interest rates and fees, it will be easy for you to compare credit cards. And when you understand the APR, you will make calculative transactions. And the advantage of this is that you could spend smartly rather than making a compulsive purchase. So check the card issuer’s APR before buying their credit cards because there could be an introductory APR. And such APRs might later turn into a high APR, making it difficult for you to pay the credit card bills.

Also Read: What are the Different Types of Credit Cards in India?


You must thoroughly understand your credit card's terms and conditions and APRs. Treat it like all the other financial instruments that are at your disposal. Also, remember that paying off the balance on your card before the end of each month's statement period is what you should aim for. APR applies to the balance on your card, and you might avoid paying extra interest.

Moreover, try and maintain a respectable credit score for long-term benefits. For instance, some cards host an APR range from 13.99 per cent to 23.99 per cent, and your credit score can land you anywhere in that range. It is also advisable not to exceed your credit limit fairly frequently. Credit scoring techniques have been observed to assess how close to "maxing out" you are. An advisable threshold is not to use more than 30 percent of your available credit.

Applying for a credit card with an initial or promotional offer is another clever strategy for getting a good APR. On purchases and debt transfers, banks frequently offer introductory APRs of 0% for lengths ranging from six months to over two years.

FAQs on Credit Card APR

Q1. What Is Apr In Credit Card?

A.The Annual Percentage Rate for credit cards is the total percentage of the rate of interest for one year. Suppose the monthly rate of interest of a credit card is 4.50%, its APR will be 54%. So as you can see it's quite a hefty interest payout. This is why checking the APR is necessary.

Q2. What Is A Good Apr For A Credit Card?

A. good APR is based on the current rate of interest offered in the market, prime rates decided by the Reserve Bank of India (RBI) and user credit score. When the prime rates are low, credit card issuers lower their APRs, and those APRs are offered to applicants with a high credit score.

Q3. How Can I Reduce Apr?

A.Below are some tips by which you can lower your credit card APR:

  • Improve credit score: By improving your credit, you get the chance to lower your credit card APR
  • Opting for a balance transfer: A viable option to avoid high APR is to transfer the credit card due balance to a 0% or low promotional rate card.
  • Paying total due balance: If your income allows you to pay off your entire balance, consider this to avoid accruing interest charges. This way, you are in good standing and can negotiate a lower APR.

Latest Comments

Leave a Comment

200 Characters

Read Next

Flipkart No Cost EMI On Credit Cards: Guide To Avail The Deal


Benefits of Using Credit Card


Unlocking Savings: Exploring Discounts & Promo Codes with Yatra on Flights Bookings

Load More

Disclaimer: This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein. Tax laws are subject to amendment from time to time. The above information is for general understanding and reference. This is not legal advice or tax advice, and users are advised to consult their tax advisors before making any decision or taking any action.