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What Is Credit Card APR And How Does It Work?

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February 17, 2023


What’s Inside

When you get a loan for yourself, you have to pay EMI. The EMI contains two things: principal and interest. The principal means the amount you borrow, and interest means the extra amount you pay.

What is Credit Card APR?

APR's full form is Annual Percentage Rate. APR in credit cards means the interest you pay the card issuer if you do not settle your credit card bill within the first due date. It is the amount you might have to pay for making purchases or withdrawing money using your credit card.

  • Credit card APRs can be different for different cards or financial institutions. For instance, you may have one card with a 9.99% APR and another card with a 14.99% APR. The effective rate depends on your credit score and monthly income.
  • BPLR refers to the interest rate that financial institutions consider while lending money. If the benchmark rate increases or decreases, your credit card's APR will follow suit.

Types of Credit Card APR

  • Credit card APR can be of two types: fixed and variable. The fixed-rate APR remains the same throughout the card's validity period. But, variable APR may change depending on the Benchmark Prime Lending Rate (BPLR).

How Does Credit Card APR Work and it's Calculation

Financial institutions use the Daily Periodic Rate (DPR) to calculate the interest amount you owe. Here is the formula and example of credit card APR calculation:

Interest = [DPR] x [Average Daily Balance] x [Total days in the billing cycle]

  • DPR - You can get the DPR by dividing your credit card APR by 365. For instance, if the APR is 15.99%, the DPR works out to 0.0438%.
  • Average Daily Balance - To determine the ADB, you need to add the outstanding amount each day of a billing cycle. After getting the figure, divide it by the total days in your billing cycle.
  • Total Days in the Billing Cycle - After discovering the DPR and ADB, you need to multiply your ADB by the DPR. After this, multiply the figure by the total days in the billing cycle.

Example: Here's a APR calculation to help you understand better.

Imagine purchasing an item worth INR 50,000 with your credit card and planning to clear the due amount after thirty (30) days of the first due date. Now, if your card issuer charges an APR of 15.99%, your DPR becomes 0.0438%. Assuming the ADB is INR 50,000, here's how you should calculate the interest:

Interest = 0.0438 x 50,000 x 30 = INR 657.00

So, in this case, the credit card APR works out to INR 657.00.


Understanding credit card APR is vital to making the most of your card. But, before calculating the APR, you need to know the DPR, average daily balance, and total days in the billing cycle. And if credit cards make you uncomfortable, check out Fi Money to get pre-approved instant loans of up to INR 5 lahks. Fi Money's paperless instant loans come with affordable interest rates and save you from the hassle of paying exorbitant APRs.

Frequently Asked Questions

1. How is APR calculated?

You can calculate credit card APR by multiplying the Daily Periodic Rate (DPR) by the Average Daily Balance (ADB). After this, you have to multiply the figure by the total days in the billing cycle.

2. Is APR charged monthly?

Although financial institutions calculate the APR annually, you have to pay the interest monthly. Card issuers use a simple formula to get one-twelfth of the annual appeal. But, the interest applies only when there is a balance on your credit card.

3. How can I avoid APR fees?

You can avoid credit card APR fees by paying the outstanding amount by the due date. Also, do not buy any new products with your credit card unless you are sure of settling the outstanding balance.

4. Do I pay APR if I pay in full?

No. Credit card APR kicks in when you carry forward your credit card balance after the first due date. You don't have to worry about the APR if you pay the outstanding amount in full.

5. Is APR charged daily?

it may be calculated and charged differently by different lenders. In general, APR is not charged daily. Instead, the interest charged on a loan is typically calculated on a monthly basis.


Fi Money is not a bank; it offers banking services through licensed partners and investment services through epiFi Wealth Pvt. Ltd. and its partners. This post is for information only and is not professional financial advice.
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