What is an Annual Percentage Rate (APR)?

A credit card’s annual percentage rate is the yearly interest rate cardholders are charged for purchases and other transactions. Depending on the credit card, APR may fluctuate—particularly if it is based on the U.S. prime rate. The APR and how it is calculated are specified in the card’s Cardholder Agreement. If a credit card has a grace period, no interest is charged on purchases so long as the outstanding balance is paid in full every month. If there is no grace period, interest is charged on every single purchase made with the card. APR may also vary by the type of transaction. For example, a cash advance may be subject to a higher APR than a purchase.