Understanding AIR Interest and APR

apr canada

Annual percentage rates (APR) and annual interest rates (AIR interest) are the yearly interest rates applied to your debts. These two terms are basically interchangeable and you may see either, depending on which credit cards you use. Understanding how interest is calculated and how it applies to credit card debt is essential for managing your debts successfully.

With the right knowledge on interest rates, you can make more informed decisions when choosing between different lines of credit or credit cards and better understand your credit card contracts. You can also be more confident when choosing the right strategy to reduce your debt. If you need help, contact Consolidated Credit at to speak with a trained credit counsellor for free or you can get started online with a Free Debt Analysis.

Are APR/AIR the Same Thing as an Interest Rate?

APR and AIR interest both refer to the interest rate applied annually to a line of credit or credit card. On credit and loan applications you may actually see APR or AIR listed separately from the interest rate. The interest rate (sometimes listed as a “periodic interest rate”) may refer to the monthly rate of interest charged on your credit line. Interest rates on credit cards and other debts are known as APR or AIR in Canada and can drastically affect how much money you pay over the life of your debts.

You can easily calculate your monthly interest rate simply by taking the APR/AIR and dividing by 12. For example, if you have a credit card with 18 per cent APR/AIR then the monthly interest rate is 1.5 per cent. It’s important to note the periodic interest rate on some lines of credit may also refer to a daily interest rate, which means the interest builds by the day on your debt rather than by the month.

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Calculating Interest Paid Using APR/AIR

You can use the APR / AIR interest on your credit card to calculate how much interest will accumulate on your credit card balance in a given month. This number is important because it lets you know how much of your monthly payment is going to paying off the interest accrued that month. If most of your payment is being used to cover interest accrued, you’re not really decreasing your balance-the principal (original) debt largely stays the same.

Using the example provided above, let’s say you have a credit card with 18 per cent APR/AIR…

  • Your periodic interest rate would be 1.5 per cent.
  • If you spend $1,000 and don’t pay off the balance immediately, your credit card will accrue $15 in interest during the first month after you incurred the debt.
  • Now, if your minimum payment is a basic percentage of your total debt (let’s say two per cent) then your first minimum monthly payment will be $20.
  • This means only $5 of the payment you make is being applied to decreasing the principal debt owed.

This is why it takes so long to pay off credit card debts, because most of your minimum payment only covers the interest accrued. You only decrease your principal balance by a few dollars each month. For instance, in the example above, it would take 12 years and seven months to pay off the debt in-full. In that time, you pay $1,396.77 in interest-meaning you paid more than twice the sticker price for the $1,000 item you purchased because of interest accrued.

Different Types of APR/AIR

When it comes to your credit cards, you may see several different APR/AIR values listed on your contract and credit card statement. These different values are the various annual interest rates applied to your account for a specific type of transaction or at different times on your account.

Here are some of the common types of APR/AIR you may find on your credit card contract or on a credit card offer:

  • APR/AIR for purchases: The standard interest rate applied for regular transactions
  • Introductory APR/AIR: A special promotional interest rate applied at the beginning of your contract
  • Balance transfer APR/AIR: Applied to transactions for transferring the balance from another credit card
  • Cash advance APR/AIR: Applied for cash advance transactions on your credit card
  • Penalty APR/AIR: Applied if you are late, miss, make a partial payment, or go over your maximum credit limit

Using APR/AIR to Your Advantage in Financial Planning

Obviously the lower the APR/AIR on a credit card, the better it is for your finances. You would only choose a higher APR/AIR credit card over a lower one if you want to receive some type of special rewards or incentives offered on the higher interest card. When choosing between a high interest rewards credit card and a low interest standard credit card, make sure to do some calculations to determine if the rewards will be worth the extra cost.

APR/AIR can also be used when you’re deciding which credit cards to pay off first when you want to reduce your debt. High interest credit cards always build interest faster so you want to pay them off as soon as possible to avoid paying more in interest accrued.

Always pay off your highest interest rate debts first, when possible. If need be, if a debt is growing too fast, check out the balance transfer APR/AIR on one of your lower interest credit cards to decide if you are able to transfer the balance to improve your monthly finances.