Help me understand APR & Fees

Woodyrocks

Posted this in the subprime thread but realised there is a chance of getting a quicker and more direct response on the main CC board.

I have a sub-prime credit card and what I need some help in understanding is the 49% APR.

I spoke to someone at Vanquis that made me feel like a right dope and left me none the wiser; what I don't understand is how this interest is worked out on a monthly statement. This is how I understood it, which I have been told is wrong -

I took it to mean that if I had a balance of £250 spent on my CC in a particular month and paid off £125 by the minmum payment date, the following month I would be charged interest of 49% on the remaining balance of £125 which would work out at £61.25p. So, the interest in addition to the outstanding balance would leave a total amount to be paid of (£125 + £61.25) = £186.25

How far off the mark am I? My math skills has never been the greatest but please help me understand this because I just don't get it. If you could try and explain it (please bear in mind that I need it kept simple otherwise it will go over my head) I would really appreciate it. Sorry for being a dope!

ldn-100

You will be charged the monthly interest rate of roughly 4.1% This will apply to the whole balance, because you did not pay it off in full. The interest on the next statement will be around £10.25.

nomoneytoday

49% is for the whole year's interest.
With a card rate that high PAY IT OFF ASAP !!

Woodyrocks

ldn-100 wrote: »

You will be charged the monthly interest rate of roughly 4.1% This will apply to the whole balance, because you did not pay it off in full. The interest on the next statement will be around £10.25.

Thanks for the helpful reply. So regardless of how much I pay, the interest is charge on the ENTIRE amount, I never knew that either (seems there is a lot I don't know). Could you please tell me how you worked out the 4.1% monthly interest.

CLAPTON

If you pay the balance in full each month then you pay no interest... with an APR of 49% you really really need to try not to borrow on this sort of card at all.

However if you dont pay in full it works like this

from the day you spend the interest starts accruing on a daily basis until you pay the debt off.

so lets say you spend £300 on the 5th of April.... your statement date is the 20th April say
now if you pay 125 on say the 1st may then your next statement (20th May ) will have interest like this

on 125 you pay interest for 25 days (i.e. from 5th april to 1st May )
and on the remaining you pay interest on 45 days (i.e. from 5th april to the 20th May.

Now if you now pay this off in full on say the 10th June you will still be charged interest on the remaining £175 from the statement date of 20 May until 10 June .. i.e. another 20 days... this is called residual interest and occurs even if you have paid in full and will be shown on June statement

Interest only stops if you pay two consecutive months in full.

So just remember if you don't pay EVERYTHING in FULL there is no interest free period for any of the spending.

ldn-100

I just divided the annual rate by 12 to get the monthly rate. The daily rate is worked out by dividing the annual rate by 365.

Paul_Herring

ldn-100 wrote: »

I just divided the annual rate by 12 to get the monthly rate. The daily rate is worked out by dividing the annual rate by 365.

While ideal for an approximation, it must be pointed out that using those calculations to get an accurate gross figure from an AER value is incorrect (the results are higher than the real figures - ok for slightly overestimating any interest you accrue on debts however.)

oxmatt

agree with Paul - the monthly rate would be nearer 3.4%.

Woodyrocks

Thank you for the information guys. I really appreciate it and it is exactly what I needed. Clapton, or any of learned Mser's in the know, can you tell me where I stand in regards to this line from your post

"Interest only stops if you pay two consecutive months in full."

I have paid every balance in full since February, does that mean that I can take a break for September, when I say take a break, I mean that I would still pay but maybe not fully clear it, without incurring any interest? (I have been a bad girl what with the shoe shopping this month )

Can I just say once again how useful all this information is. Cheers to all of you.

CLAPTON

you must pay each and every month in full to avoid interest charges.

my reference to two consecutive months is in the context of paying interest because you haven't paid in full and
then the next month paying in full but still being charged interest on the following month.... in these circumstances you need two clear months of paying in full before the interest stops. (see my example above).

If you dont pay in full in september then you will pay interest for at least two months as per my example.

NickX

CLAPTON wrote: »

so lets say you spend £300 on the 5th of April.... your statement date is the 20th April say
now if you pay 125 on say the 1st may then your next statement (20th May ) will have interest like this

on 125 you pay interest for 25 days (i.e. from 5th april to 1st May )
and on the remaining you pay interest on 45 days (i.e. from 5th april to the 20th May.

I would just like to point out that some cards including Barclaycard actually now charge even more than this.

With Barclaycard they ignore the fact that the payment of £125 was made on 1st May and assume that it didn't go on your account until the next statement date, i.e. 20th May.

This means that interest is charged on the full amount of £300 for the entire period of 5th April until 20th May.

This negates any benefit from making a part payment before the Due Date.

Barclaycard changed their Terms and Conditions to this effect late last year, and it is possible that other card providers (particularly perhaps in the sub-prime market) work in this way also.