I've read every article and post on the internet and I'm still confused.

I'm getting a credit card with a 19.9% APR with no annual or monthly fees.

I read that APR is the annual rate for borrowing. What does that even mean? I thought interest was charged based on a loan. So what would annual rate be? I'm not charged annual fees.

If I got a credit line of $1,000 and spent $1,000 that year, what is the APR vs. the interest rate?

I'm sorry, but I'm unable to understand this and I really need some help. I've read a lot about this and do not have a clear understanding of what the APR means, especially when there are no annual fees, and how it compares with interest. I've read the terms/agreements and they are not crystal clear about it.

They say it's the APR for "standard purchases." Okay, so that means what exactly? I am told that I pay no interest if I pay in full within six months. So then what the hell is the APR for? I'm lost.

  • 2
    Check out this explainer on how to read the disclosure form that came with your card. stlouisfed.org/education_resources/personal_finance/…
    – Todd
    Commented Mar 1, 2016 at 18:48
  • 3
    What country are you in? Commented Mar 1, 2016 at 20:00
  • I'm in the same boat, with credit cards that have high APR, but here's an article that has some good information on lowering your APR from lifehacker.com (Kinja.com site). (lifehacker.com/…) The idea is that you give them the impression you will not accept a credit line increase, and instead you will be switching to a card with lower APR. To keep you as a customer, they may eventually give in to lowering your APR, but it's not guaranteed. Very interesting read though.
    – dakre18
    Commented Mar 2, 2016 at 1:18

3 Answers 3


Credit Cards typically charge interest on money you borrow from them. They work in one of two ways.

Most cards will not charge you any interest if you pay the balance in full each month. You typically have around 25 days (the "grace period") to pay that off. If that's the case, then you will use your credit card without any cost to yourself.

However, if you do not pay it in full by that point, then you will owe 19.9% interest on the balance, typically from the day you charged the payment (so, retroactively). You'll also immediately begin owing interest on anything else you charge - typically, even if you do then pay the next month the entire balance on time. It's typically a "daily" rate, which means that the annual rate (APR) is divided into its daily rate (think the APR divided by 365 - though it's a bit different than that, since it's the rate which would be 19.9% annualized when you realize interest is paid on interest).

Say in your case it's 0.05% daily - that means, each day, 0.05% is added to your balance due. If you charged $1000 on day one and never made a payment (but never had to - ignore penalties here), you'd owe $1199 at the end of the year, paying $199 interest (19.9*1000).

Note that your interest is calculated on the daily balance, not on your actual credit limit - if you only charge $100, you'd owe $19.90 interest, not $199.

Also note that this simplifies what they're actually doing. They often use things like "average daily balance" calculations and such to work out actual interest charged; they tend to be similar to what I'm describing, but usually favor the bank a bit (or, are simpler to calculate).

Finally: some credit cards do not have a grace period. In the US, most do, but not all; in other countries it may be less common. Some simply charge you interest from day one.

As far as "Standard Purchases", that means buying services or goods. Using your credit card for cash advances (i.e., receiving cash from an ATM), using those checks they mail you, or for cash-like purchases (for example, at a casino), are often under a different scheme; they may have the same rate, or a different rate. They likely incur interest from the moment cash is produced (no grace period), and they may involve additional fees. Never use cash advances unless you absolutely cannot avoid it.

  • Do any US banks not have a grace period? Interest from day one till paid? I don't know, either way, just haven't seen this in a long time. Commented Mar 1, 2016 at 20:01
  • @JoeTaxpayer I'm not sure; really low end cards, perhaps. Thought it was worth mentioning just in case. (And, US tag is not on question of course.)
    – Joe
    Commented Mar 1, 2016 at 20:11
  • " it's a bit different than that, since it's the rate which would be 19.9% annualized when you realize interest is paid on interest" No it's not. When you account for compounding, the annualized percentage becomes the APY, and the APY will be higher than the 19.9% APR. The credit card is not offering 19.9% APY.
    – Ben Voigt
    Commented Mar 16, 2020 at 19:28

Welcome to the world of personal finance. IMO, you are heading for trouble.

To answer your question, the APR is the annual percentage rate, or what you pay to borrow money from the CC issuer. For example, if you charge $100, and the bill comes, and you pay $100 on or before the due date you pay nothing. If you pay the minimum payment, which would be around $15, you would then borrow $85 (100-15) and pay interest on that amount.

The next month's balance would be 85 + any new charges + interest. The interest in this case can be estimated as follows: 85*.199/12 = 1.41.

For your information that is a very high interest rate especially given the current market for borrowed money. Many people become saddled with debilitating debt starting off just like you are planning. If we were friends, I would implore you not to get a CC, instead save up and pay for things with cash.

  • 8
    19.9% is a very typical rate for a card for someone with limited credit history; it may simply be the best that's possible to do with a 600 or so credit score. If you're good about paying it off every month, it may be the simplest way to build credit.
    – Joe
    Commented Mar 1, 2016 at 18:47

Banks have to disclose up front the Annual Percentage Rate or interest rate that will be charged if you have an outstanding balance on a credit card.

However, the APR of 19.9% is not charged all at once. For example if you had a $100 dollar balance on your credit card you would not be charged 19.9% interest or 19.90 making your new balance 119.90.

Instead you would be charged the periodic rate which is one month's interest. You can easily calculate the period rate by dividing the APR by 12. So, 19.9% equals 1.65833% per month. This means if you had a $100 balance you would be charged 1.65833% interest or 1.66 making your new balance 101.66.

Ask the bank or look on the website for a document called "Cardholders Agreement". If you can't find a link ask them for a copy so you can read all the fine print ahead of time.

  • s/calculate/estimate
    – Paul
    Commented Jan 26, 2017 at 14:58

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