How to calculate APR on a credit card

Credit card issuers must disclose their cards’ annual percentage rates (APRs), which is helpful if you’re comparing credit cards. But if you want to estimate how much interest could be added to your monthly credit card statement, you need to gather a few key figures to do the math based on what you’ve borrowed. 

What you’ll learn:

• APR represents the annual cost of borrowing money. 

• There may be different APRs for the same card, depending on the type of transaction.

• To find APR on a credit card, you can multiply your daily rate by the average daily balance and the number of days per billing cycle.

• Some credit card issuers offer temporary promotional rates, such as 0% introductory APRs.

For credit cards, there’s typically no difference between APR and interest because card issuers usually don’t include extra fees when calculating the APR. That’s not the case for something like a mortgage, which may include other fees and charges that come with the loan.

Most credit card accounts have a variable APR. That means the rate may change as benchmark interest rates, such as the prime rate, go up or down. But issuers are required to notify you of changes to your APR or an increase in your minimum monthly payment.

Credit card issuers determine APR based on the card and how a card is used:

• Purchase APR: Often referred to as the standard rate, it’s what might be charged for day-to-day transactions.

• Promotional APR: These limited-time rates are typically lower than standard APR. If a promo rate is offered for opening a card, you might see it called an introductory rate.

• Balance transfer APR: The rate applied to transferring a balance from one credit card account to another. This is typically the same as the purchase APR, but it may be lower if there’s an introductory rate.

• Penalty APR: The rate charged if you miss payments by 60 days or more. This typically stays in place for at least six months.

• Cash advance APR: The rate that is applied when you use a credit card to withdraw cash. Cash advance APRs might also be applied if you transfer money using apps like PayPal, pay other debt using a third-party service, buy casino chips or lottery tickets, or exchange dollars for foreign currency.

You can calculate the APR that’s applied to your credit card balance within a billing cycle by multiplying your daily rate by the average daily balance and the number of days per billing cycle. You’ll just need to find those numbers first.

• Daily rate: You can determine the daily rate by dividing the APR by 365. If your card has a 22% APR, your daily rate would be 0.06%. Use the decimal form when you plug this rate into the formula.

• Average daily balance: Total the credit card balance from each day in the billing cycle. Then divide it by the number of days in the billing cycle to find the average daily balance.

• Number of days per billing cycle: Credit cards typically have a billing cycle that’s 28 to 31 days. You can review your credit card agreement or statements to find the number of days in your card’s billing cycle. 

Once you find these numbers, you can plug them into the credit card APR formula.

To find the APR on a credit card, you can use this formula:

Daily rate × Average daily balance × Number of days per billing cycle = Credit card APR

For example, a cardholder with a daily rate of 0.06%, an average daily balance of $100 and a 28-day billing cycle would owe the following in APR:

0.0006 × $100 × 28 = $1.68

So if these were the terms and balance of your credit card, you would pay $1.68 in monthly interest. 

But keep in mind that if you pay off your balance every month before the due date, you usually won’t have to pay any interest on new purchases.

A good APR for a credit card is typically one that’s at or below the current national average, according to credit-scoring company Experian®. Maintaining good credit scores can help lenders see you as a better candidate for a card with a low APR.

Calculating APR on a credit card can help you understand how much it might cost you to borrow money. Because APRs are a broader measure of borrowing costs than interest rates, it can be helpful to compare APRs when you apply for credit cards.

The interest rate and APR are typically the same for credit cards, but some credit cards may offer promotional APRs. If you’re looking for a new card, you could compare Capital One credit cards to see which card best matches your needs.