APR

APR is the number on every loan offer and card agreement that says what borrowing costs per year. On a loan it folds the interest rate and most of the required fees into one figure, which is why it is usually a little higher than the interest rate alone; on a credit card it is the interest rate, charged only on a balance carried past the due date. The APR is what a balance costs you each year, and divided by twelve it is roughly what each month of carrying it costs, which is the arithmetic that turns a $2,000 balance into about $42 of interest a month.

In a sentence

• "The card's APR is 24.99%, so carrying a $2,000 balance costs about $42 a month in interest alone."
• "The dealer quoted 6.9% APR on the car loan, and that figure already includes the loan's fees."
• "A 0% introductory APR ends after fifteen months, and the regular rate applies to whatever is still owed."

How it works

Lenders in the United States are required to state an APR so that offers can be compared on the same basis. What goes into it depends on the product.

On a card, the APR is turned into a daily rate, the APR divided by 365, and that rate is applied to each day's balance; a 24.99% APR is about 0.068% a day. Pay the statement balance in full by the due date and no interest is charged, because of the grace period between the statement and the due date. Carry any of it and interest runs on the whole balance, and on new purchases from the day they are made.

Most cards carry more than one APR: a purchase APR, a higher cash advance APR with no grace period, a penalty APR after a missed payment, and sometimes an introductory APR that expires. A variable APR moves with a published index, usually the prime rate, plus a fixed margin, so it changes when that rate changes; a fixed APR does not.

An example

A $2,000 card balance at 24.99% APR, carried for a 30-day billing cycle with no new purchases, accrues about $41 of interest: the daily rate of 0.0685% times $2,000 is $1.37 a day, times 30 days. A $100 payment against that balance reduces it by $59; the other $41 went to interest.

On a loan the same APR arithmetic sets a fixed payment.

The $395 payment is the amount that repays $20,000 plus 6.9% a year on the declining balance in exactly sixty payments. The first payment is $115 of interest and $280 of principal, and the split moves toward principal every month.

Why it matters

APR is the price of borrowing, and it compounds against you the way savings interest compounds for you. It decides whether an offer is cheap or expensive next to another, how much of a minimum payment is interest, and how long a balance takes to clear. Two cards with the same balance and the same payment but APRs of 18% and 28% reach zero months apart, and the difference is entirely interest. It matters least on a card paid in full every month, where the APR is never charged, and most on the balances that are carried for years.

APR versus interest rate versus APY

The interest rate is the cost of the money alone. The APR adds the lender's required fees, which is why a loan's APR is usually slightly higher than its interest rate and a card's APR is the same as its interest rate. The APY, the annual percentage yield, is the figure a savings account advertises: the same idea with compounding included, so that a 4.00% rate compounded monthly shows as a 4.07% APY. Borrowing is quoted as APR and saving as APY, and because a card's daily compounding is not in its APR, a card balance costs slightly more in practice than the number suggests.

Common questions

Is APR the same as the interest rate? On a credit card, yes. On a loan the APR is the interest rate plus the required fees spread over the term, so it is the better figure for comparing two offers, and the interest rate is the one the monthly payment is computed from.

What is a good APR? It depends on the product and on your credit. Mortgages and car loans run far lower than credit cards, and within each product the range is wide. Compare offers of the same kind against each other, and compare a card's APR against the interest you would actually pay on a balance you carry.

Does the APR matter if I pay my card in full every month? No. Interest is charged only on a balance carried past the due date, so a card that is paid in full is a card whose APR is never applied. It starts to matter the first month a balance is carried, and from then on.

How is credit card interest calculated from the APR? The APR is divided by 365 to get a daily rate, and the daily rate is applied to each day's balance across the billing cycle. A 24.99% APR on a $2,000 balance is about $1.37 a day, or about $41 over a 30-day cycle.

What is a variable APR? An APR that moves with a published index, usually the prime rate, plus a margin the card sets. When the index rises, the APR and the interest on any carried balance rise with it; a fixed APR stays where it was set.

Go deeper

• The Credit card payoff calculator shows what a balance costs at its APR and how long a payment takes to clear it.
• The Loan calculator turns an amount, a term and a rate into the monthly payment and the total interest.
• Debt snowball versus debt avalanche is where the APR decides the order the debts are paid.
• How to budget with a credit card without overspending keeps a balance from being carried in the first place.

Where it shows up in Zypper

Zypper shows the balance the APR is charged on rather than the APR itself. Credit cards and loans, including mortgages and auto, student and personal loans, connect alongside checking and show their balances on the liability side of net worth, charted over time, so a balance that is being carried and a balance that is falling are both visible as a line. Each card payment and each loan payment is identified as a recurring group with its next expected date and amount, and a card payment is linked to its checking side as one transfer so it never reads as spending. See Supported account types, Net worth tracking, and Recurring transactions and bill tracking for the details, or get started with Zypper to see every balance in one place.