Does APR matter if you pay your balance on time?
Editor's Note
If you're still learning about credit cards, you may have encountered the term APR and wondered what it stands for. More specifically, you're probably wondering how APR works and whether you need to worry about it.
APR stands for annual percentage rate, and while it may sound complicated, it's actually quite simple. Here's what you need to know.
What is APR?
APR represents the annual cost you pay to borrow money from a lender or credit card issuer — in other words, your interest rate on credit card payments.
When dealing with credit cards, there are multiple types of APR: purchase APR (the interest rate applied to purchases made with your card), introductory APR (a promotional interest rate offered for a limited time on a new card), cash advance APR (the interest rate applied to cash that you borrow from your credit card) and more.
However, when people talk about credit card APR, they're usually referring to purchase APR.
APR isn't the only cost associated with credit cards, as there are also factors like annual fees and balance transfer fees to consider. However, it's definitely the most significant cost unless you always pay off your balance in a timely fashion.
Related: TPG's 10 commandments of credit card rewards
Does APR matter if you pay on time?
The short answer is no. Credit cards offer a grace period that allows you to make purchases with your card without incurring interest charges at the purchase APR rate — providing you pay off your balance in full by the payment due date each month.
In this case, the purchase APR becomes irrelevant since there is no outstanding balance against which to accrue interest.
Note that a grace period is not legally required, so it's essential to understand the terms of your credit card agreement to know how borrowing money affects you.
Related: How to choose the best credit card for you
How APR works
If you don't pay your balance in full each month, your credit card issuer will charge interest on the remaining balance. Additionally, any new purchases you make may accrue interest from the day of the transaction without a grace period.
Because credit card company policies vary, make sure you read the terms and conditions for your specific credit card to understand how the grace period is treated.
The amount of interest credit card issuers charge is determined by your average daily balance. This means that every day you carry a balance will increase the amount of interest you have to pay. That interest can compound quickly, making it more challenging to eliminate your debt.
All of this is why our No. 1 commandment of credit card rewards is "Thou shalt pay thy balance in full." You won't get any value from your credit card rewards if you have to pay back interest every month.
Related: How to choose your best credit card strategy
Bottom line
Credit card interest can be a scary concept. It's one of the reasons some people shy away from credit cards completely, seeing them as predatory and potentially money-draining.
The truth is that if you're a responsible cardholder, you can avoid paying interest; your credit card can add value to your bottom line, not subtract from it. Paying off your balance in full each month will ensure you never have to worry about APR, allowing you to enjoy all the benefits that a rewards credit card can offer.
TPG featured card
Rewards
| 17X | Earn up to 17X total points per $1 spent at thousands of hotels participating in Marriott Bonvoy® with the Marriott Bonvoy Boundless® Card. |
| 3X | Earn 3X points per $1 on the first $6,000 spent in combined purchases annually on grocery stores, gas stations, and dining. |
| 2X | 2X points for every $1 spent on all other purchases. |
Intro offer
Annual Fee
Recommended Credit
Why We Chose It
The Marriott Bonvoy Boundless carries a $95 annual fee but offers plenty of ways to get more value from it year after year. You’ll get automatic Silver elite status, which awards 10% bonus points on stays, and enjoy a pathway to Gold status (with 15 elite night credits each year) to lock in some even better benefits. Cardholders also receive an annual free night certificate (worth up to 35,000 points) each cardmember anniversary. Those who can maximize this certificate can lock in a room with a rate far exceeding the $95 annual fee.Pros
- Annual free night certificate (up to 35,000 points) each cardmember anniversary
- Automatic Silver elite status with a pathway to Gold
Cons
- There are better Marriott cards if you want higher tier status or no annual fee
- Earn 125,000 Bonus Points + 1 Free Night Award after qualifying purchases.
- Earn 3X points per $1 on the first $6,000 spent in combined purchases annually on grocery stores, gas stations, and dining.
- Earn 1 Elite Night Credit towards Elite Status for every $5,000 you spend.
- 1 Free Night Award (valued up to 35,000 points) every year after account anniversary.
- Earn up to 17X total points per $1 spent at thousands of hotels participating in Marriott Bonvoy® with the Marriott Bonvoy Boundless® Card.
- Receive 15 Elite Night Credits annually, automatic Silver Elite status, and path to Gold Status when you spend $35,000 on purchases each calendar year.
- No Foreign Transaction Fees. Your points don't expire as long as you make purchases on your card every 24 months.
- Member FDIC
Rewards Rate
| 17X | Earn up to 17X total points per $1 spent at thousands of hotels participating in Marriott Bonvoy® with the Marriott Bonvoy Boundless® Card. |
| 3X | Earn 3X points per $1 on the first $6,000 spent in combined purchases annually on grocery stores, gas stations, and dining. |
| 2X | 2X points for every $1 spent on all other purchases. |
Intro Offer
Earn 125,000 Bonus Points + 1 Free Night Award after spending $3,000 on eligible purchases within 3 months of account opening with your Marriott Bonvoy Boundless® Credit Card. Free Night Award valued up to 50,000 points. Certain hotels have resort fees.125K Points + 1 Free NightAnnual Fee
$95Recommended Credit
Credit ranges are a variation of FICO® Score 8, one of many types of credit scores lenders may use when considering your credit card application.Good Credit, Excellent Credit
Why We Chose It
The Marriott Bonvoy Boundless carries a $95 annual fee but offers plenty of ways to get more value from it year after year. You’ll get automatic Silver elite status, which awards 10% bonus points on stays, and enjoy a pathway to Gold status (with 15 elite night credits each year) to lock in some even better benefits. Cardholders also receive an annual free night certificate (worth up to 35,000 points) each cardmember anniversary. Those who can maximize this certificate can lock in a room with a rate far exceeding the $95 annual fee.Pros
- Annual free night certificate (up to 35,000 points) each cardmember anniversary
- Automatic Silver elite status with a pathway to Gold
Cons
- There are better Marriott cards if you want higher tier status or no annual fee
- Earn 125,000 Bonus Points + 1 Free Night Award after qualifying purchases.
- Earn 3X points per $1 on the first $6,000 spent in combined purchases annually on grocery stores, gas stations, and dining.
- Earn 1 Elite Night Credit towards Elite Status for every $5,000 you spend.
- 1 Free Night Award (valued up to 35,000 points) every year after account anniversary.
- Earn up to 17X total points per $1 spent at thousands of hotels participating in Marriott Bonvoy® with the Marriott Bonvoy Boundless® Card.
- Receive 15 Elite Night Credits annually, automatic Silver Elite status, and path to Gold Status when you spend $35,000 on purchases each calendar year.
- No Foreign Transaction Fees. Your points don't expire as long as you make purchases on your card every 24 months.
- Member FDIC