Confused by Capital One charges

edited 30 November -1 at 1:00AM in Credit Cards
7 replies 1.5K views
BillBrumBillBrum Forumite
46 Posts
edited 30 November -1 at 1:00AM in Credit Cards
I have been looking at getting the Capital One Platinum Mastercard (0% until 1/1/07).

https://www.capitalone.co.uk/web/raid/templates/formdual_temp_10_001.jsp?page_id=10400&context_id=2&step=1&product_id=8757005

I clicked on the link to the full credit card agreement and read about the 2% BT fee - which I knew about.

BUT - there is another paragrapgh, quite separate to that, which states:

Total charge for credit:
At the time the agreement is made, is £116.17
Comprising interest in the sum of: £116.17

Does that mean that the first bill shows this charge as well as the BT fee? Can anyone help?

Replies

  • YorkshireBoyYorkshireBoy Forumite
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    This question gets asked a lot on this board. When viewing the online T&C's, if you search for 'total charge' by using the 'edit/find (on this page)' and then the 'find next' commands, you will come across the following paragraph in the T&C's (I've expanded it to make it more legible)...
    In calculating the APR and Total Charge for Credit we are required by law to assume that:

    *the credit limit will be £1,500 unless we know the credit limit when this agreement is made, in which case we will use that credit limit;

    * the credit is provided for a period of one year beginning with the date of the agreement;

    * the rate of interest payable in relation to the whole of the credit under this agreement is that applying to purchases;

    * and that the credit is repaid in twelve equal monthly instalments, beginning one month after the date of this agreement.
    So, in summary, buy something for £1,500 on day one, repay it back in 12 equal payments, and the total interest charged will be £116.17

    Be aware that, despite the temptation of 3 months 0% on purchases, this is a BT card and you shouldn't make purchases on it after BT'ing to it. This is because your payments go towards paying off the lowest interest rate first. After the first 3 months, any purchase will attract 14% APR until the entire balance is cleared.
  • RafterRafter Forumite
    3.8K Posts
    It is a calculation designed by the office of fair trading to make credit cards less confusing!

    As YB points out though, it completely ignores any introductory offers and is just the amount of interest you would end up paying if you made a £1500 purchase after all the offers were over and then paid it back over 12 equal installments.

    If all you are using the card for is a BT deal then it is not relevant.

    R.
    Smile :), it makes people wonder what you have been up to.
  • YorkshireBoyYorkshireBoy Forumite
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    Rafter wrote:
    As YB points out though, it completely ignores any introductory offers and is just the amount of interest you would end up paying if you made a £1500 purchase after all the offers were over and then paid it back over 12 equal installments.
    I didn't say that Rafter. The figure is based on making a purchase on day 1 - not "after all the offers were over".

    The total charge includes any introductory interest rate payable. So, the above quoted total charge for credit takes into account 0% for 3 months, followed by 14% for 9 months.

    You can check the numbers by comparing the total charge for credit for this product with that of a card that has a similar purchases interest rate but no introductory rate.
  • RafterRafter Forumite
    3.8K Posts
    I have just calculated the numbers and confirm that the calculation ignores any promotional period for purchases and uses the rate following the 3 month period. Ie 14.9% APR.

    The actual amount of interest if you made a purchase of £1500 on the first day you got the card, then paid it of in 12 equal amounts would be less but that is not how the APR regulations work.

    A bit like the APR calculation itself, it is a totally artificial number which nobody would end up paying, which reduces its value in my view.

    R.
    Smile :), it makes people wonder what you have been up to.
  • YorkshireBoyYorkshireBoy Forumite
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    Rafter wrote:
    I have just calculated the numbers and confirm that the calculation ignores any promotional period for purchases and uses the rate following the 3 month period. Ie 14.9% APR.

    The actual amount of interest if you made a purchase of £1500 on the first day you got the card, then paid it of in 12 equal amounts would be less but that is not how the APR regulations work.
    Hi Rafter, I'd based my post on my understanding of the Yorkshire Bank credit card.

    They quote a total charge for credit of £108.45 on their 6 month 0% offering, where their normal APR is 13.9%.

    The £108.45 corresponds to 7.23%, which is what they call their "select rate" in the T&C's.

    http://www.ybonline.co.uk/0,,63145,00.html

    On this basis, the 'total charge for credit' does indeed include the introductory rate of 0% for 6 months and 13.9% for the remaining 6 months.

    Are you suggesting that Capital One calculate their 'total charge for credit' differently?
  • RafterRafter Forumite
    3.8K Posts
    Yorkshireboy (and anyone else who has not gone to sleep on the technical detail of this one).

    Yorkshire bank use the same calculation as capital 1.

    108.45/750 (the 1500 divided by 2 as it is paid in equal installments so the average outstanding is roughly half the original purchase) = 14.4% APR.

    7.23% is not a real number because the amount you are borrowing over the full year is not the £1500 because you are repaying capital every month.


    If you do the calculation in detail......

    In month 1 you pay no interest as you are in the interest free period.

    In month 2 you pay 2 months interest from original date or purchase (common misconception by many that you always get your interest free period, whereas in fact unless you pay your statement in full, interest in backdated to the purchase date.)

    Each month you pay off an equal amount (£134 in the YBank example).

    The total interest payable using this is 108.45 - the total cost for credit. Any annual fee etc would be added to this if one were payable.

    The Consumer credit act states that the cost of credit must be calculated ignoring any promotional offer but be based on the standard purchase rate.

    By all means pm me with an e-mail address and I'll send you the spreadsheet.

    R.
    Smile :), it makes people wonder what you have been up to.
  • YorkshireBoyYorkshireBoy Forumite
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    Rafter wrote:
    108.45/750 (the 1500 divided by 2 as it is paid in equal installments so the average outstanding is roughly half the original purchase) = 14.4% APR.

    The Consumer credit act states that the cost of credit must be calculated ignoring any promotional offer but be based on the standard purchase rate.
    These two items explain everything - I'd forgotten the first and didn't know the second.
    Rafter wrote:
    By all means pm me with an e-mail address and I'll send you the spreadsheet.
    Not necessary Rafter, the above clearly explains it for me (and hopefully anyone else still awake ;)). Thanks for that.
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