How credit card interest works

At a glance

APR

Annual percentage rate describes the annualized cost of credit

Grace period

Many cards can avoid purchase interest when statement balances are paid as required by the account terms

Overview

A credit card is revolving credit: purchases, payments, fees, and interest change the balance over time. The annual percentage rate is an annualized measure, while issuers typically calculate periodic interest according to the account agreement and applicable balance method. Paying the statement balance by the due date can preserve a purchase grace period on many cards, but cash advances and other transaction types can follow different rules.

Minimum payment is not the total cost target

Paying at least the minimum keeps an account from being treated the same as a missed payment, but carrying a balance can extend repayment and increase total interest. The statement shows information designed to help cardholders understand repayment timing and costs, so compare the minimum with the amount needed to avoid or reduce interest.

Transaction type matters

Purchases, balance transfers, and cash advances can use different APRs, fees, and grace-period rules. Before using a card for a transaction outside ordinary purchases, read the card's current disclosures rather than assuming the same interest treatment applies to every balance on the account.

Sources and review

MOOR's explanatory text is supported by the following source links.

1. What is a credit card interest rate? — Consumer Financial Protection Bureau
2. What is a grace period for a credit card? — Consumer Financial Protection Bureau