What Is APR and How to Calculate It
10 Min Read | Last updated: July 3, 2025
Comparing Annual Percentage Rates (APRs) can help you find the right loans. Learn how to calculate APR on a credit card and get tips to lower costs.
At-A-Glance
- Annual Percentage Rate (APR) estimates the total yearly cost of borrowing with loans, including all fees and interest. APR on a credit card, however, equals the interest rate.
- APR exists to help you compare lending products so you can make the most affordable choices for your budget, and lenders need to disclose their rates.
- Higher credit scores may help you to qualify for loans or credit cards with lower APRs, so it’s important to practice good credit habits.
Buying your first home or long-awaited dream car is exciting. But as you sit pen in hand, ready to sign the paperwork, you might wonder if you’re getting the best deal. Learning how Annual Percentage Rates (APRs) work and how they measure borrowing costs may help you better compare loans and credit cards, helping you find the right loan, or credit card, for you.
What Is APR?
Expressed as a percentage amount, APR measures the all-in costs a lender charges a borrower per year, plus any fees or other costs.1 Typical borrowing fees may include:2
- Application fees
- Origination fees
- Late or insufficient fund fees
Adding these fees to the stated or nominal interest rate may help you determine and budget for the full borrowing cost of a loan. While feeless loans may have an APR equal to the interest rate, your APR is almost always higher than your interest rate.3
What Is APR On a Credit Card?
A credit card’s APR is the same as its stated interest rate for standard purchases.4 But a credit card’s APR excludes any potential penalty fees, separate cash advance fees, foreign exchange fees, or balance transfer fees.5 Credit card APRs may vary with time, too, so don’t hesitate to explore your options.
Types of Annual Percentage Rates
In a broad sense, there are two types of APRs: fixed rates, which may remain the same and variable rates which can fluctuate. Both offer pros and cons, so it’s important to consider both options carefully. For instance, while a fixed APR may simplify budgeting, a variable APR could offer an interest rate that’s initially lower than any given fixed APR alternative.
In addition to fixed and variable APR rates, there are other more specific types of APR rates as well. These can apply to credit cards and refer to the rate of interest that you may be charged for different types of transactions, or as a penalty.
Here are specific types of APR:6
- Penalty APRs may apply when you make late payments.
- Purchase APRs apply to credit card purchases.
- Balance transfer APRs you pay when you carry out a balance transfer.
- Introductory or promotional APRs associated with 0% APR credit cards.
- Cash advance APRs for cash withdrawals made with a credit card.
When lenders compete for your business, they may quote their terms in a favorable light, making direct comparisons difficult. That’s where the 1968 Truth in Lending Act (TILA) comes in. TILA requires lenders to outline certain costs and terms uniformly to simplify loan shopping, so lenders must always disclose APR.7 That’s why knowing how to calculate APR in all its forms can help clarify the full picture of the financial product you’re shopping for.
How to Calculate APR
Before calculating APR, you’ll need to know your loan amount, all finance charges, the interest rate, and the loan term. Once you have that information, follow these steps to calculate your APR:8
- Add the cost of interest and all finance charges or fees.
- Divide that number by the loan amount.
- Divide the result by the number of days in your loan’s term.
- Multiple the result by 365.
- Multiply that result by 100 to create a percentage.
- Note the APR as a percentage.
Once you have your final result, you can decide between financing plans with a higher stated interest rate and lower upfront fees or plans with extra fees upfront, like mortgage points, that could contribute to a lower interest rate. Just note that your APR could change over time as well, depending on the type of loan you have.9
Tips for Lower APRs
Generally, the higher a cardholder’s credit score, the lower the rates they may be able to qualify for.10 But this will depend on the type of loan in question. There are a few steps you can take to make yourself more attractive to low APR lenders or lower your overall APR:
- Build positive credit habits that positively impact your credit score, such as making your loan payments on time and keeping your credit utilization ratio low.
- You can try to negotiate your APR by contacting lenders to request lowered rates and bringing better offers, a strong credit report, and any credit score improvements to the equation.
Did you know?
You can look over the progress of your credit report and score with American Express® MyCredit Guide.
- If you have credit card debt with a high APR, you may want to consider debt consolidation strategies like consolidation loans or 0% intro APR credit card offers.
Is APR Accurate?
APR may not always be exact, but it does provide helpful estimates of borrowing costs.
Regardless, here are a few APR variables and limitations that you should consider:
- APR calculation assumes the entire loan term, which may not come to pass if you pay off the loan early.
- APRs may not represent the maximum interest rate possible since rates can vary between when you apply and when your term begins.
- With credit cards, APR may become irrelevant if you pay your balances in full each month, potentially eliminating interest charges altogether.
Frequently Asked Questions
Your credit card may have a high APR despite your good credit score because your score could have recently risen and was lower at approval. Rewards credit cards may also come with higher APRs while rising interest rates and penalty fees could also increase APRs.11
Avoiding interest on cards you carry balances on may be impossible no matter when you pay, but paying off the balances each month in full by their due date can help you avoid interest. That said, some issuers do have credit card grace periods, where the purchases you make between the end of the billing cycle and your payment’s due date could stay interest-free.12
You can find your APR in your credit card’s terms and conditions. Other loans and credit line products must also spell out your APR online or with accompanying documents when taking out the loan.
The Takeaway
APR estimates the total yearly borrowing costs of your loans or credit cards, helping you compare costs to make an informed choice that’s right for you. Understanding the fees and interest rates included in APR may better prepare you for big-ticket purchases and eliminate the surprise of unanticipated costs. With higher credit scores and responsible borrowing habits, you might be able to lower your APR with time.
1,3,4,5 “APR vs. Interest Rate: What’s the Difference?,” Experian
2 “5 Personal Loan Fees to Watch Out For,” Experian
6 “What Is an APR and How Does It Work?,” Experian
7 “Truth in Lending Act: Consumer Protection for Borrowing Money,” The Office of Financial Readiness
8 “What is the APR on a mortgage and how does it work?,” Bankrate
9 “What is an APR on a Credit Card?,” Equifax
10 “How Does Your Credit Score Affect Your Interest Rate?,” Experian
11 “Ask a Credit Card Expert: Why Is my APR so High if I Have Good Credit?,” U.S. News
12 “How your grace period lets you avoid paying interest on a credit card,” Bankrate
Kristina Russo is a CPA and MBA with over 20 years of business experience in firms of all sizes and across several industries, including media and publishing, entertainment, retail, and manufacturing.
All Credit Intel content is written by freelance authors and commissioned and paid for by American Express.
Related Articles
Fixed APRs vs Variable APRs
Know the difference between fixed and variable rate APRs before taking out a credit product. Here’s a look at how fixed APR and variable APRs work.
The Differences Between APR, APY, and Interest Rates
APR and APY both include interest rates, but one is mostly for borrowers and the other for investors. Learn more about the differences between APR and APY.
What Is Compound Interest & How Is it Calculated?
Understand what compound interest is and how it works. Make interest work for you and grow your finances more quickly.
The material made available for you on this website, Credit Intel, is for informational purposes only and intended for U.S. residents and is not intended to provide legal, tax or financial advice. If you have questions, please consult your own professional legal, tax and financial advisors.
