Credit cards are a convenient way to pay for the things we want and need. We can swipe a card and pay for dinner, clothing or some other new purchase. When we do, we know we’ll later get a monthly bill, or “statement,” and, ideally, we pay off the balance, or at least the minimum payment due, by the due date.

If we can’t pay off the entire statement balance, no problem. The credit card company will roll over the balance from month to month.

It sounds simple, but that revolving balance comes with a cost: interest. And without understanding how credit card interest accumulates, you can get yourself into more credit card debt than you’d like.

Not many people like to pay more than they need to or be surprised by a big credit card bill. So, let’s take a closer look at credit card interest – what it is, how it works, and more.

What is credit card interest?

Basically, interest is what a credit card user pays to borrow the amount they’ve charged. A credit card charge is a loan, after all. A credit card’s interest rates can vary based on several factors, including the card issuer’s policies and a user’s credit scores.

Where can I find the interest rate for my account?

The rate your credit card issuers are charging you can be found in two places. First, check the disclosures your credit card company gave you at the time of your account opening. Don’t have the disclosures? Don’t panic. Your rate is also on your monthly credit card statement.

What is APR?

APR stands for annual percentage rate. The APR charged by a credit card company is the total cost you pay for charging purchases or borrowing money. The APR includes any fees you are charged, which are not reflected in the interest rate alone. Many credit cards don’t have the sorts of fees that are typically charged for mortgages, auto loans, and other loans. When there are no additional fees or costs, the APR and the interest rate are the same.

How do card issuers decide what interest rate to charge?

Typically, issuers look at an applicant’s credit score and credit report. They will also factor in their costs of providing any perks you’ll receive, such as airline miles or cash back. Other considerations include current prime rate, market conditions, and how many users the card issuer desires per specific credit card.

That means interest rates for the same credit card can vary from person to person and even day to day.

When do I start paying interest on a purchase?

Understanding when a credit card company starts charging interest is important to keeping your credit card bill under control. Does interest start to accrue the moment you make a purchase? At the end of a billing cycle? Some other time?

Many credit cards offer a grace period during which they don’t charge any interest for new purchases. This means that you don’t start paying interest right away. For many credit cards, there is a 21-day grace period between when the monthly statement is generated and when payment’s due.

In practice, this means that many credit card companies don’t charge interest until 21 days after your payment is due for that billing cycle. However, this does vary, so check with your credit card company for your own credit card’s terms.

You might not receive your bill until several days after the company generates your monthly statement. Not sure when your statement is generated? Call your credit card issuer and ask how your billing period works. Statement dates are usually the same each month.

How does interest on a credit card get calculated?

Because the balance on your credit card may fluctuate from day to day, credit card companies look at the average daily balance to determine how much interest you owe each month.

To do this, the credit card company adds up your balances from the end of each day in the billing cycle. Then they divide that amount by the number of days in the billing cycle. Finally, the company will multiply this total by the card’s APR.

The reason interest charges can add up so quickly is because credit card companies use compound interest. This means that any interest you owe is considered part of your average daily balance. You end up paying interest on any outstanding interest payments. This can balloon quickly. You may find yourself with a surprisingly high statement balance if you don’t understand interest charges and compounding interest.

Will my interest rate change?

Whether or not your interest rate will change depends on the terms set by your credit card company. There is fixed APR and variable APR. Variable APR cards are more common that fixed APR cards.

With a fixed APR, your interest rate will not change over time. With a variable APR your interest rate may change over time. The rate often is tied to the prime rate, or the rate banks offer to borrowers with the best credit.

It’s important to know which type of APR your card has. Even if you open a card with a low APR, it could increase dramatically if it’s a variable APR. Your credit card’s APR impacts how much interest you pay each year, so it’s important to know your APR and how it can impact what you owe.

Can a card have more than one interest rate?

Credit cards can – and often do – have more than one interest rate, depending on how they’re used. Even the rare card that is billed as having a fixed interest rate can have triggers that cause that rate to change.

A financial institution must give you notice before it changes your interest rate. This means it’s important to read any information your credit card issuer sends you. Here are some of the different rates a consumer might see on a credit card.

Purchase rate

The purchase rate is the interest charged on credit card purchases that are not paid off before the card’s grace period ends. This is what consumers typically think of when they think about interest rates for credit cards.

Cash advance rate

Some features of your credit card, like a cash advance, may be charged at different interest rates. It is common for credit card companies to charge a higher APR for cash advances than for regular purchases. They may also not come with the same grace period as a purchase rate, meaning they immediately start to accrue interest – so double-check your credit card terms before taking out cash.

Penalty rate

If you charge more than your credit limit permits, your card may charge a penalty APR. It’s usually far higher than the credit card’s standard interest rate. Lenders also might increase your rate if you miss a payment, or more than one payment.

Balance transfer rate

Sometimes consumers transfer an unpaid balance from one credit card to another. This could result in the card holder paying one interest rate on the amount transferred and a different rate on new purchases.

Introductory rate

Some credit cards try to attract new users by offering a low introductory rate. This can be a great deal but pay close attention to when that introductory period will end and what the new rate will be.

How can I pay less on interest charges?

The best way to avoid paying interest is to pay your full statement balance each month. That way you won’t accrue interest. However, this may be not realistic for you. If you can’t pay off your card balance each month, there are other ways to avoid interest — or pay less of it.

Negotiate a lower rate

Try to negotiate a lower interest rate. It’s more likely to work if you’ve had the same credit card for a long time, have a history of paying your monthly bill on time, and have a high credit score. Pull your credit report to see what card issuers will see. You can use Best Egg Financial Health to check your credit history and see what may work in your favor when you talk with your card issuer.

Apply for a low-interest card

Shop around and apply for a credit card with a lower interest rate. (Just remember that applying for a new card may impact your credit score!)

Use a 0% introductory offer

Many cards offer a 0% introductory rate for new purchases – but only for a limited time. This is a great way to pay less (or nothing) in interest, especially on big purchases. Some cards offer 0% interest on balance transfers, too. You can transfer an existing balance from a card with a high interest rate to one with a 0% interest rate. If you can pay off your balance before the new card starts charging interest, that could mean a lot of savings for you. Just remember to factor in the new card’s post-offer interest rate and terms.

Pay more than the monthly minimum

Bring total interest charges down by paying more than the minimum amount due each month. The monthly minimum listed on your bill barely touches the principal. Paying more each month may help to cut down on the amount of interest you end up paying and shorten the time it takes you to pay off your balance.

Shop smart

Being an informed credit card consumer can save you money over time. As you shop for the right card for you, don’t stop at credit card interest rates. Consider the whole picture carefully, including your circumstances, goals, and options. Some people may even find it best to refinance a high-interest credit card balance with a personal loan. Whatever your plan, start by gathering good information and forming good habits now, so you can confidently work toward your financial goals.