Understanding Credit Card Interest Rates & APR
Updated: August 26, 2025
Credit cards make shopping online and in-store simple and convenient. But when it comes to credit cards, one of the most talked-about topics is APR (annual percentage rate). Does it really matter? The answer depends on your financial habits. If you tend to carry a balance from month to month, your APR is extremely important because it determines how much interest you’ll pay. On the other hand, if you pay your balance in full every month, your APR won’t have much impact. In this article, we’ll break down what APR means, how credit card interest rates works, and why it’s especially important to understand if you’re someone who carries a balance.
What is Credit Card APR?
Before we dive into why APR matters for balance carriers, let’s start with the basics. APR stands for Annual Percentage Rate, which is simply the yearly cost of borrowing money. In the case of credit cards, it’s the interest rate applied to any unpaid balance. The good news is, if you pay your statement balance in full by the due date each month, you won’t owe any interest. However, if you carry a balance from one billing cycle to the next, your APR kicks in, and that’s when interest charges begin to add up.
APR Types
- Purchase – The APR applied to purchases made on a credit card.
- Cash advance – Higher than regular credit card purchases, the cash advance rate is the cost of borrowing cash from your credit card.
- Penalty – These rates are applied when you violate the conditions of your card, like paying a due balance late. Penalty rates are the highest APR.
- Introductory or promotional – These low rates are typically offered for a limited time, as a promotion for new or existing card holders.
How Can I Lower the Interest Rate on My Credit Card?
The APR applied to your balance is based on your creditworthiness, meaning your credit score determines the interest rate you pay. The higher your credit score, the lower your APR. If you find yourself with a high APR, working to raise your credit score can help you in more ways than one.
Why Does Credit Card APR Matter?
The best way to explain why credit card APR matters to balance carriers is with the example below. There are many calculators you can use to see how much credit card interest rates is costing you, and how much you could save by paying down your balances.
Example 1: Let’s say you keep a balance of $5,000 on your high-rate retail or bank credit card, and your APR is 25%. Using those figures…
- Your current monthly interest charge would $104.17
- Interest over 1 year would be $1,250.04
- Your interest over 5 years would be $6,250.50
Example 2: Let’s say you keep a balance of $5,000 on your high-rate retail or big bank credit card, and your APR is 13%. Using those figures…
- Your current monthly interest charge would be $54.17
- Interest over 1 year would be $650.04
- Interest over 5 years would be $3,250.20
The above examples show why APR should matter to you if you are a balance carrier. The good news is, you have options! Check out our low-rate credit cards at Launch CU.
