Credit Card APR Explained: Purchase, Balance Transfer, Cash Advance and Penalty Rates

APR, or annual percentage rate, is the yearly cost of borrowing on a credit card, expressed as a percentage. Most cards have several APRs that apply to different kinds of transactions. Knowing which one applies, and when, is the key to understanding what a card will cost you.

The APRs you will see in a card’s terms

• Purchase APR applies to balances from everyday purchases that you carry past the due date.
• Introductory APR is a temporary rate, often 0%, on purchases, balance transfers or both for a set number of months.
• Balance transfer APR applies to debt moved from another card, once any introductory rate ends.
• Cash advance APR applies to cash withdrawals and cash-like transactions. It is usually higher than the purchase APR, interest typically starts immediately, and a cash advance fee is often charged as well.
• Penalty APR may apply after a late or returned payment, depending on the card’s terms.

Variable rates and the Prime Rate

Most card APRs are variable. They are calculated as an index, usually the U.S. Prime Rate, plus a margin set by the issuer. When the Prime Rate moves, your APR moves with it. That is why card terms often show a range, such as a low and high figure “based on creditworthiness”: the margin you receive depends on your credit profile.

The grace period: how to pay no interest at all

Many cards offer a grace period on purchases. If you pay your statement balance in full by the due date, you are not charged interest on those purchases. Carry any part of the balance and you generally lose the grace period until the balance is paid off. If you pay in full every month, the purchase APR matters far less than rewards and fees.

How interest is calculated

Issuers typically convert the APR to a daily rate and apply it to your average daily balance over the billing cycle. In practice this means that paying down a balance earlier in the cycle reduces interest, and that a large balance carried for months grows quickly at typical card rates.

Reading the rates and fees table

U.S. card issuers publish a standardized summary of rates and fees, often called the Schumer box, alongside each application. It lists every APR, the annual fee, transaction fees and penalty fees in one place. The card pages on this site do not state current rates or fees, because they change often, and the issuer’s current table is the authoritative source.