Lesson 4 of 7 14 min

APR and Interest

How interest is charged — and why minimum payments are so expensive.

Written by Mateo LermaLast reviewed September 20263 sources Editorial standards

All lessons in Credit & Debt

Step 1: The lesson

What is APR, and how is credit card interest charged?

Key term

APR (Annual Percentage Rate)

The yearly cost of borrowing, as a percentage. For credit cards, the APR is the interest rate on balances you carry.

Cards usually charge interest daily. The daily rate is the APR ÷ 365. On a 22% APR, that's about 0.06% a day — small each day, but it adds up, and it compounds.

The minimum payment is designed to be small. On many cards, it's about 1% of your balance plus that month's interest. That means most of your payment goes to interest, and the balance barely moves.

Your statement is required to show how long it would take to pay off your balance by making only minimum payments — and how much you'd pay in total. Read that box.

Pay in full whenever you can.
Pay more than the minimum — even a little more helps a lot.
Stop adding new purchases to a card that has a balance.
Ask your card issuer for a lower APR if you've paid on time.

"No interest if paid in full"

Some store cards offer deferred interest. If you don't pay the whole purchase off by the deadline, interest can be charged all the way back to the purchase date. That's different from a true 0% APR offer.

Step 2: See it

A $2,000 balance at 22% APR: interest paid

Hypothetical example

Step 3: Real-world example

Chris and the $2,000 balance

Chris owes $2,000 on a card with a 22% APR and stops using the card. Three ways to pay it off:

Minimum only: about 11.6 years, $2,600 in interest — more than the original balance.
$100 a month: 26 months, about $514 in interest.
$200 a month: 12 months, about $230 in interest.

The debt is the same. The payment decides whether it costs a couple hundred dollars or a couple thousand.

Step 4: Try it

Credit card payoff calculator

Change the payment and compare it with paying only the minimum.

Your numbers

Card balance

APR

Your monthly payment

Assumes no new purchases on the card.

Results

Paying $100 a month

2 years, 2 months

$514 in interest

Paying only the minimum

11 years, 7 months

$2,600 in interest

Balance $2,000
Interest $514

“Minimum” here means 1% of the balance plus that month's interest, or $25, whichever is more — a common formula. Card issuers vary; your statement shows yours.

Educational calculator, not financial advice. Results are hypothetical estimates based on the numbers you enter.

Step 5: Knowledge check

Quiz: APR and Interest (4 questions)

Answer each question, then check your answer to see the explanation. Retake it as many times as you like.

Question 1 of 4

Step 6: Summary

Summary: APR and Interest

APR is the yearly cost of borrowing. Cards usually charge interest daily, and minimum payments are mostly interest, so balances shrink slowly. Paying more than the minimum — or in full — saves a lot. Watch out for deferred-interest offers.

Step 7: What you should remember

Key takeaways: APR and Interest

APR ÷ 12 ≈ monthly interest rate. APR ÷ 365 = daily rate.
Minimum payments are mostly interest. Pay more whenever you can.
Your statement shows the true cost of paying only the minimum.
Deferred interest isn't the same as 0% APR.

Key terms in this lesson

Finished the lesson?

Mark it complete to track your progress.

Sources and further reading

Rules, rates, and official figures in this lesson are based on these sources. People and numbers in examples are hypothetical.

1.
What is a credit card interest rate? What does APR mean? (opens in a new tab)
Consumer Financial Protection Bureau · consumerfinance.gov
2.
What is the difference between a mortgage interest rate and an APR? (opens in a new tab)
Consumer Financial Protection Bureau · consumerfinance.gov
3.
Credit cards key terms (opens in a new tab)
Consumer Financial Protection Bureau · consumerfinance.gov

Cite this lesson

Financial Literacy Club. (2026, September). APR and interest. https://learnwithflc.org/courses/credit-and-debt/apr-and-interest

Spot an error or an out-of-date number? Tell us and we'll fix it. Read our editorial standards.

Key terms in this lesson