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How Does Credit Card Interest Work?

Updated
Lyle Daly
Ashley Maready
By: Lyle Daly and Ashley Maready

Our Credit Cards Experts

Eric McWhinnie
Check IconFact Checked Eric McWhinnie
Many or all of the products here are from our partners that compensate us. It’s how we make money. But our editorial integrity ensures our experts’ opinions aren’t influenced by compensation. Terms may apply to offers listed on this page.

For all the benefits that credit cards offer, there are also risks to using them. One of the most common ways people get into trouble is via credit card interest. You can end up paying lots of money to your card issuer if you're not careful, which is why it's so important to understand how credit card interest works.

What is credit card interest?

Credit card interest is simply the cost of borrowing money with a credit card. If you don't pay off the full statement balance by the due date, then the card issuer can charge you interest on the unpaid amount.

What makes credit cards different from loans is that you can avoid interest if you use your card correctly -- you just need to pay the statement balance by the due date.

Most card issuers give you an interest-free grace period from the date they put together your billing statement until the payment due date. By understanding how credit cards work, you can use your card for purchases and pay them off without incurring any interest. This only applies when you pay in full, though. If you don't, you lose that grace period, and your card issuer can start charging you interest on new purchases immediately. You'll typically have to pay in full for two billing cycles in a row to get that grace period back.

What is APR?

APR stands for "annual percentage rate," and it's the total cost you pay per year for borrowing money. Let's say, for instance, you have a credit card with an APR of 20%. Your balance is $1,000, and it stays at that level for the entire year. That balance would incur $200 -- 20% of that $1,000 -- in interest charges.

That said, most credit cards have variable APRs, which means the APR can fluctuate.

It's only with credit cards that APR and interest rate mean the same thing. With other types of financing, such as loans, the interest rate refers specifically to the fee the lender charges for borrowing money. The APR is the total yearly cost of borrowing money, so it includes the interest rate and any additional fees. A mortgage has an interest rate, but it can also have an origination fee and closing costs -- those would be included in the APR, so the APR would be a bit higher than the interest rate.

How to find your credit card's APR

Your credit card's APR is listed in your billing statement each month. You can also find this information in your online credit card account.

Keep in mind that credit cards can have multiple APRs, as the rate can change depending on promotional offers, penalties, and transaction types. Here are the most common types of credit card APRs:

  • Purchase
  • Balance transfer
  • Cash advance
  • Promotional (a lower introductory rate, such as those offered by 0% intro APR cards)
  • Penalty (a higher APR that the card issuer can apply when your payment is late, usually by 60 days or longer, or for other violations of your cardholder agreement)

How is credit card interest calculated?

To calculate credit card interest, card issuers multiply the daily percentage rate by the balance. The daily percentage rate is the card's APR divided by 365. On a credit card with a 24.00% APR, the daily percentage rate would be 0.07%.

While calculation methods can vary by card issuer, the most common is multiplying the outstanding balance by the daily percentage rate each day, and then adding up the daily interest totals for the billing cycle.

Let's say you start with a $1,000 balance on a card with a 24.00% APR. The interest on the first day would be $1,000 multiplied by 0.07%, which is $0.70. On the next day, the interest charge would be $1,000.70 multiplied by 0.07%, and so on.

Our credit card interest calculator below can help you determine how much interest you may pay over time and when you can expect to pay off your debt.

Credit Card Interest Calculator
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How do card issuers determine interest rate?

Card issuers use a variety of factors to determine a card's interest rate, including:

  • The prime rate: This is the interest rate banks offer to borrowers with the best credit, and it's closely related to the benchmark interest rate set by the Federal Reserve.
  • Creditworthiness: Your credit, income, and other financial details will affect your card's interest rate if it has a variable APR. With better credit, you'll likely qualify for a rate on the lower end of the card's APR range. And among cards with fixed APRs, the cards intended for more creditworthy applicants tend to have lower APRs.
  • Type of credit card: A credit card's category and the benefits it offers can play a role in its interest rate. For example, card issuers may set higher interest rates on their top rewards credit cards.

Paying less credit card interest

There are a few ways to pay less in credit card interest.

Pay off your credit card every month

If you're able to pay your credit card off every month -- the entire amount owed, not just the minimum balance -- you'll avoid most interest payments (cash advances can be different, but you can also opt not to take them out).

Negotiate a lower interest rate

Sometimes, you can ask your credit card issuer for a lower interest rate. This is especially effective if you've held the credit card for a long time and you've consistently paid your bill on time.

Get a card that offers a 0% intro APR for purchases

If you have a lot of expenses all at once, a 0% purchase intro APR card is a good short-term solution. These types of cards won't charge interest on purchases for several months (often 10 or more). If you owe a balance at the end of the 0% APR period, you will owe interest on it at the card's go-to APR.

0% intro APR credit cards

Below, we've listed three of our favorite 0% intro APR credit cards. For the full list, check out our guide: Best 0% Intro APR Credit Cards.

As of Nov. 27, 2023
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Wells Fargo Reflect® Card Citi Simplicity® Card Chase Freedom Flex℠
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4.00/5 Circle with letter I in it. Our ratings are based on a 5 star scale. 5 stars equals Best. 4 stars equals Excellent. 3 stars equals Good. 2 stars equals Fair. 1 star equals Poor. We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
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5.00/5 Circle with letter I in it. Our ratings are based on a 5 star scale. 5 stars equals Best. 4 stars equals Excellent. 3 stars equals Good. 2 stars equals Fair. 1 star equals Poor. We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
= Best
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Apply Now for Citi Simplicity® Card

On Citi's Secure Website.

Apply Now for Chase Freedom Flex℠

On Chase's Secure Website.

Credit Rating Requirement: Circle with letter I in it. Falling within this credit range does not guarantee approval by the issuer. An application must be submitted to the issuer for a potential approval decision. There are different types of credit scores and creditors use a variety of credit scores to make lending decisions.

Recommended Credit Score required for this offer is: Good/Excellent (670-850)

Good/Excellent (670-850)

Credit Rating Requirement: Circle with letter I in it. Falling within this credit range does not guarantee approval by the issuer. An application must be submitted to the issuer for a potential approval decision. There are different types of credit scores and creditors use a variety of credit scores to make lending decisions.

Recommended Credit Score required for this offer is: Good/Excellent (670-850)

Good/Excellent (670-850)

Credit Rating Requirement: Circle with letter I in it. Falling within this credit range does not guarantee approval by the issuer. An application must be submitted to the issuer for a potential approval decision. There are different types of credit scores and creditors use a variety of credit scores to make lending decisions.

Recommended Credit Score required for this offer is: Good/Excellent (670-850)

Good/Excellent (670-850)

Welcome Offer:

Welcome Offer: Circle with letter I in it. There is an intro balance transfer fee of 3% of each transfer (minimum $5) completed within the first 4 months of account opening. After that, your fee will be 5% of each transfer (minimum $5).

Lower intro balance transfer fee

Welcome Offer: Circle with letter I in it. Earn a $200 Bonus after you spend $500 on purchases in your first 3 months from account opening!

$200 bonus

Rewards Program:

N/A

Rewards Program:

N/A

Rewards Program: Circle with letter I in it. 5% cash back on up to $1,500 in combined purchases in bonus categories each quarter you activate. Enjoy new 5% categories each quarter! Plus, earn 5% cash back on travel purchased through Chase Ultimate Rewards®, 3% on dining and drugstores, and 1% on all other purchases.

5% cash back offer

Intro APR: Circle with letter I in it. 0% intro APR for 21 months from account opening on purchases and qualifying balance transfers

Purchases: 0% intro APR, 21 months from account opening

Balance Transfers: 0% intro APR, 21 months from account opening on qualifying balance transfers

Intro APR:

Purchases: 0%, 12 months

Balance Transfers: 0%, 21 months

Intro APR: Circle with letter I in it. 0% Intro APR on Purchases

Purchases: 0% Intro APR on Purchases, 15 months

Balance Transfers: 0% Intro APR on Balance Transfers, 15 months

Regular APR:

18.24%, 24.74%, or 29.99% Variable APR

Regular APR:

19.24% - 29.99% (Variable)

Regular APR:

20.49%-29.24% Variable

Annual Fee: Circle with letter I in it. N/A

$0

Annual Fee:

$0

Annual Fee: Circle with letter I in it. N/A

$0

Highlights:

  • Select “Apply Now” to take advantage of this specific offer and learn more about product features, terms and conditions.
  • 0% intro APR for 21 months from account opening on purchases and qualifying balance transfers. 18.24%, 24.74%, or 29.99% variable APR thereafter; balance transfers made within 120 days qualify for the intro rate, BT fee of 5%, min $5.
  • $0 Annual Fee.
  • Up to $600 of cell phone protection against damage or theft. Subject to a $25 deductible.
  • Through My Wells Fargo Deals, you can get access to personalized deals from a variety of merchants. It's an easy way to earn cash back as an account credit when you shop, dine, or enjoy an experience simply by using an eligible Wells Fargo credit card.

Highlights:

  • No Late Fees, No Penalty Rate, and No Annual Fee... Ever
  • 0% Intro APR for 21 months on balance transfers from date of first transfer and 0% Intro APR for 12 months on purchases from date of account opening. After that the variable APR will be 19.24% - 29.99%, based on your creditworthiness. Balance transfers must be completed within 4 months of account opening.
  • There is an intro balance transfer fee of 3% of each transfer (minimum $5) completed within the first 4 months of account opening. After that, your fee will be 5% of each transfer (minimum $5).
  • Stay protected with Citi® Quick Lock.

Highlights:

  • Earn a $200 Bonus after you spend $500 on purchases in your first 3 months from account opening.
  • 5% cash back on up to $1,500 in combined purchases in bonus categories each quarter you activate. Enjoy new 5% categories each quarter!
  • 5% cash back on travel purchased through Chase Ultimate Rewards®, our premier rewards program that lets you redeem rewards for cash back, travel, gift cards and more
  • 3% cash back on drugstore purchases and dining at restaurants, including takeout and eligible delivery service, and unlimited 1% cash back on all other purchases.
  • No minimum to redeem for cash back. You can choose to receive a statement credit or direct deposit into most U.S. checking and savings accounts. Cash Back rewards do not expire as long as your account is open!
  • 0% Intro APR for 15 months from account opening on purchases and balance transfers, then a variable APR of 20.49%-29.24%.
  • No annual fee - You won't have to pay an annual fee for all the great features that come with your Freedom Flex℠ card
  • Keep tabs on your credit health - Chase Credit Journey helps you monitor your credit with free access to your latest score, real-time alerts, and more.
  • Member FDIC
Apply Now for Citi Simplicity® Card

On Citi's Secure Website.

Apply Now for Chase Freedom Flex℠

On Chase's Secure Website.

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Get a low interest credit card

If you're sure you'll carry a credit card balance from month to month, look into low interest credit cards. These cards charge less in interest than their competitors.

Many people can't pay off their credit card every month. If this is your situation, in addition to looking for ways to pay less in credit card interest, talk to a financial advisor. Your bank may also offer free financial advice, or might be able to point you to free financial services in your area.

Low interest credit cards

We've listed a few of our favorite low interest credit cards below. To see all the cards in our list, head to our guide: Best Low Interest Credit Cards.

As of Nov. 27, 2023
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Citi® Diamond Preferred® Card Discover it® Cash Back Bank of America® Customized Cash Rewards credit card
Rating image, 4.25 out of 5 stars.
4.25/5 Circle with letter I in it. Our ratings are based on a 5 star scale. 5 stars equals Best. 4 stars equals Excellent. 3 stars equals Good. 2 stars equals Fair. 1 star equals Poor. We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
= Best
= Excellent
= Good
= Fair
= Poor
Rating image, 5.00 out of 5 stars.
5.00/5 Circle with letter I in it. Our ratings are based on a 5 star scale. 5 stars equals Best. 4 stars equals Excellent. 3 stars equals Good. 2 stars equals Fair. 1 star equals Poor. We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
= Best
= Excellent
= Good
= Fair
= Poor
Rating image, 4.50 out of 5 stars.
4.50/5 Circle with letter I in it. Our ratings are based on a 5 star scale. 5 stars equals Best. 4 stars equals Excellent. 3 stars equals Good. 2 stars equals Fair. 1 star equals Poor. We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
= Best
= Excellent
= Good
= Fair
= Poor

Credit Rating Requirement: Circle with letter I in it. Falling within this credit range does not guarantee approval by the issuer. An application must be submitted to the issuer for a potential approval decision. There are different types of credit scores and creditors use a variety of credit scores to make lending decisions.

Recommended Credit Score required for this offer is: Good/Excellent (670-850)

Good/Excellent (670-850)

Credit Rating Requirement: Circle with letter I in it. Falling within this credit range does not guarantee approval by the issuer. An application must be submitted to the issuer for a potential approval decision. There are different types of credit scores and creditors use a variety of credit scores to make lending decisions.

Recommended Credit Score required for this offer is: Good/Excellent (670-850)

Good/Excellent (670-850)

Credit Rating Requirement: Circle with letter I in it. Falling within this credit range does not guarantee approval by the issuer. An application must be submitted to the issuer for a potential approval decision. There are different types of credit scores and creditors use a variety of credit scores to make lending decisions.

Recommended Credit Score required for this offer is: Good/Excellent (670-850)

Good/Excellent (670-850)

Welcome Offer:

Welcome Offer: Circle with letter I in it. N/A

Discover will match all the cash back you’ve earned at the end of your first year.

Welcome Offer: Circle with letter I in it. $200 online cash rewards bonus after you make at least $1,000 in purchases in the first 90 days of account opening

$200 cash rewards

Rewards Program:

N/A

Rewards Program: Circle with letter I in it. Earn 5% cash back on everyday purchases at different places you shop each quarter like grocery stores, restaurants, gas stations, and more, up to the quarterly maximum when you activate. Plus, earn unlimited 1% cash back on all other purchases—automatically.

1% - 5% Cashback

Rewards Program: Circle with letter I in it. 3% cash back in your choice category, 2% at grocery stores & wholesale clubs (up to $2,500 in combined choice category/grocery store/wholesale club quarterly purchases), 1% on all other purchases.

1% - 3% cash back

Intro APR:

Purchases: 0%, 12 months

Balance Transfers: 0%, 21 months

Intro APR:

Purchases: 0%, 15 months

Balance Transfers: 0%, 15 months

Intro APR: Circle with letter I in it. 0% Intro APR for 15 billing cycles for purchases. 0% Intro APR for 15 billing cycles for any balance transfers made in the first 60 days. After the intro APR offer ends, 18.24% - 28.24% Variable APR on purchases and balance transfers will apply. Balance transfers include a fee of 3% for 60 days from account opening, then 4%.

Purchases: 0% Intro APR for 15 billing cycles for purchases

Balance Transfers: 0% Intro APR for 15 billing cycles for any balance transfers made in the first 60 days

Regular APR:

18.24% - 28.99% (Variable)

Regular APR:

17.24% - 28.24% Variable APR

Regular APR:

18.24% - 28.24% (Variable)

Annual Fee:

$0

Annual Fee:

$0

Annual Fee:

$0

Highlights:

  • 0% Intro APR for 21 months on balance transfers from date of first transfer and 0% Intro APR for 12 months on purchases from date of account opening. After that the variable APR will be 18.24% - 28.99%, based on your creditworthiness. Balance transfers must be completed within 4 months of account opening.
  • There is a balance transfer fee of either $5 or 5% of the amount of each transfer, whichever is greater.
  • Get free access to your FICO® Score online.
  • With Citi Entertainment®, get special access to purchase tickets to thousands of events, including concerts, sporting events, dining experiences and more.
  • No Annual Fee - our low intro rates and all the benefits don’t come with a yearly charge.

Highlights:

  • INTRO OFFER: Unlimited Cashback Match for all new cardmembers – only from Discover. Discover will automatically match all the cash back you’ve earned at the end of your first year! There’s no minimum spending or maximum rewards. You could turn $150 cash back into $300.
  • Earn 5% cash back on everyday purchases at different places you shop each quarter like grocery stores, restaurants, gas stations, and more, up to the quarterly maximum when you activate. Plus, earn unlimited 1% cash back on all other purchases—automatically.
  • Redeem your rewards for cash at any time.
  • Discover could help you reduce exposure of your personal information online by helping you remove it from select people-search sites that could sell your data. It’s free, activate with the mobile app.
  • Get a 0% intro APR for 15 months on purchases. Then 17.24% to 28.24% Standard Variable Purchase APR applies, based on credit worthiness.
  • No annual fee.
  • Terms and conditions apply.

Highlights:

  • $200 online cash rewards bonus after you make at least $1,000 in purchases in the first 90 days of account opening.
  • Earn 3% cash back in the category of your choice, automatic 2% at grocery stores and wholesale clubs (up to $2,500 in combined choice category/grocery store/wholesale club quarterly purchases) and unlimited 1% on all other purchases.
  • Choose 3% cash back on gas and EV charging station, online shopping/cable/internet/phone plan/streaming, dining, travel, drug store/pharmacy or home improvement/furnishing purchases.
  • If you're a Bank of America Preferred Rewards® member, you can earn 25%-75% more cash back on every purchase. That means you could earn 3.75%-5.25% cash back on purchases in your choice category.
  • No annual fee and cash rewards don’t expire as long as your account remains open.
  • 0% Intro APR for 15 billing cycles for purchases, and for any balance transfers made in the first 60 days. After the Intro APR offer ends, a Variable APR that’s currently 18.24% - 28.24% will apply. A 3% Intro balance transfer fee will apply for the first 60 days your account is open. After the Intro balance transfer fee offer ends, the fee for future balance transfers is 4%.
  • Contactless Cards - The security of a chip card, with the convenience of a tap.
  • This online only offer may not be available if you leave this page or if you visit a Bank of America financial center. You can take advantage of this offer when you apply now.
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FAQs

  • Yes, by law your card issuer is required to inform you of the card's APR. You can also find it listed in your billing statement each month, or in your online credit card account details.

  • Card issuers use a variety of factors to determine a card's interest rate, including:

    • The prime rate
    • Creditworthiness
    • Type of credit card
  • Credit card interest rates vary and since they are variable, the average changes over time. As of this writing, the average is 28.15%.

Our Credit Cards Experts