Understanding Credit Card APR: How It Affects Your Payments and Debt

Understanding your credit card APR is one of the most important steps to staying out of debt and saving money.

By: Vanessa in 20/06/2025

When it comes to credit cards, one of the most important terms you’ll hear is APR, which stands for Annual Percentage Rate. While it might sound complicated at first, understanding APR is key to managing your credit card debt and avoiding high interest charges.

In this blog post, we’ll explain what APR is, how it’s calculated, how it affects your credit card payments, and how you can manage or lower a high APR. Whether you’re new to credit cards or just want to improve your financial knowledge, this guide is for you.

What Is APR?

APR stands for Annual Percentage Rate. It’s the yearly interest rate that credit card companies charge you if you don’t pay your balance in full every month. In simple terms, APR tells you how much it will cost to borrow money using your credit card.

Here’s an example:

If your credit card has a 20% APR and you carry a $1,000 balance for a year without making payments, you would owe about $200 in interest.
However, APR doesn’t just apply yearly. Interest is often calculated daily, based on your daily balance, then added up and charged monthly.

Types of Credit Card APR

Not all APRs are the same. In fact, your credit card can have multiple APRs depending on how you use it. Here are the most common types:

1. Purchase APR

This is the interest rate charged on regular purchases if you carry a balance.

2. Balance Transfer APR

This rate applies when you transfer debt from one credit card to another.

3. Cash Advance APR

Charged when you use your credit card to withdraw cash. This APR is usually higher than others and often has no grace period, meaning interest starts building immediately.

4. Introductory APR

Many cards offer a 0% APR for a limited time (e.g., 12 months) on purchases or balance transfers. After the promo period, the APR goes up to the regular rate.

5. Penalty APR

If you miss a payment or violate terms, the issuer may apply a penalty APR, which is often much higher than your standard APR.

How Is APR Calculated?

Credit card companies set APR based on several factors:

Your credit score
Your credit history
Market interest rates
The type of credit card

Most cards use a variable APR, which means it can change over time based on the prime rate (the rate banks charge their best customers).

To calculate how much you’ll pay in interest, you need to understand something called the Daily Periodic Rate (DPR).

Here’s how it works:

Step 1: Convert APR to Daily Rate

Divide your APR by 365 (days in a year).
For example, if your APR is 18%, your DPR is:

0.18 ÷ 365 = 0.000493

Step 2: Multiply by Daily Balance

If you have a $1,000 balance, interest for one day is:

$1,000 × 0.000493 = $0.49

Step 3: Multiply by Days in Billing Cycle

If your billing cycle is 30 days:

$0.49 × 30 = $14.79 interest charge for the month.

So if you don’t pay your full balance, this is how interest grows.

How APR Affects Your Monthly Payments

If You Pay in Full Each Month

Good news! If you pay your full balance by the due date, you usually don’t pay any interest on purchases. This is called the grace period.

If You Carry a Balance

Interest starts accumulating based on your APR and daily balance. This makes your debt grow over time, and you’ll need to pay more to catch up.

Here’s an example:

Let’s say you owe $2,000 with an APR of 20%. If you only pay the minimum payment (usually around 2% of your balance), it could take you years to pay off the debt—and you could end up paying thousands in interest.

The True Cost of High APR

High APRs can trap you in a cycle of debt. Even a small balance can grow quickly if interest keeps adding up.

For example:

Balance: $3,000
APR: 25%
Minimum payment: $90

If you only make minimum payments, it could take over 17 years to pay it off, and you might pay more than $6,000 in interest.

This is why it’s important to understand and manage your APR.

Why Is My APR So High?

There are several reasons why your credit card APR might be high:

Low credit score – Issuers see you as a higher risk.
Limited credit history – New users often get higher APRs.
Missed payments – May trigger a penalty APR.
Market conditions – If interest rates go up, your APR may increase too.

Can I Lower My Credit Card APR?

Yes, you can! Here are some tips to help you lower your APR:

1. Improve Your Credit Score

Pay bills on time
Reduce debt
Don’t apply for too many new accounts
A higher credit score often qualifies you for better rates.

2. Ask for a Lower APR

Call your credit card company and ask. If you’ve been a good customer with on-time payments, they might agree.

3. Transfer Your Balance

Look for a card with a 0% intro APR on balance transfers. This can help you pay down your debt faster—without interest—during the promo period.

4. Refinance with a Personal Loan

A personal loan with a lower interest rate can help you consolidate and pay off high-interest credit card debt.

How to Manage a High APR Card

Even if your card has a high APR, you can still avoid paying interest. Here’s how:

1. Pay Your Balance in Full

Avoid interest entirely by paying off the full amount before the due date.

2. Pay More Than the Minimum

This reduces your balance faster and cuts down on the interest you pay over time.

3. Make Multiple Payments Per Month

Even if you can’t pay in full, making payments throughout the month reduces your average daily balance—and your interest.

4. Avoid Cash Advances

These usually have the highest APR and no grace period. Only use them in emergencies.

5. Use Low-APR Cards for Big Purchases

If you must carry a balance, use a card with the lowest APR available.

Common Questions About APR

Q: What’s a good APR for a credit card?

A good APR depends on your credit score. As of 2025:

Excellent credit: 14% – 18%
Average credit: 19% – 24%
Poor credit: 25% or more
Some credit unions offer lower rates.

Q: Does APR affect my credit score?

No, your APR doesn’t directly affect your score. However, high balances and missed payments—which are more likely with high APRs—do impact your credit score.

Q: Why did my APR increase?

If your card has a variable APR, it may go up when the prime rate rises. Also, late payments or breaking card terms can lead to a penalty APR.

Q: How often can my APR change?

Variable APRs can change monthly, but credit card companies must notify you at least 45 days in advance of a major increase (except for variable rate changes due to market conditions).

Q: Is 0% APR really interest-free?

Yes, during the promo period. But once the offer ends, any remaining balance starts accruing interest at the regular APR.

Final Thoughts

Understanding your credit card APR is one of the most important steps to staying out of debt and saving money. While it’s easy to focus on rewards or cashback, ignoring your APR can cost you hundreds—or even thousands—of rands over time.

The key takeaways are: