Virgin Atlantic MBNA Credit Card - Rocketing Interest Rate

kennyLondon

I just got a letter from Virgin Atlantic MBNA credit card to say that the standard interest rate is to increase from about 16% apr to 27.9% apr!!!!!! Lucklyily I am on a 0% introductory rate and will have paid off the balance by the time the new rate takes effect.

Also can anyone tell me why the annual rate they have quoted (27.9%) is not 12 times the monthly rate they have quoted (2.0751%)? Is this a mistake or is the annual rate calculation not as straightforward as multiplying the monthly rate by 12.

NickX

kennyLondon wrote: »

Also can anyone tell me why the annual rate they have quoted (27.9%) is not 12 times the monthly rate they have quoted (2.0751%)? Is this a mistake or is the annual rate calculation not as straightforward as multiplying the monthly rate by 12.

Unfortunately interest rate hikes such as this are becoming commonplace with MBNA run cards. Best to use them for promotional rates only.

The interest calculation is a little more complex than multiplying by 12. It is known as Compound Interest which means that "powers" are used to convert from monthly to annual.

Basically the Annual Rate = (((1 + Monthly Rate /100) ^ 12) - 1) * 100

Where ^ is the mathematical power symbol.

In this case from MBNA :

Annual Rate = (((1 + 2.0751/100) ^ 12) - 1) * 100 = 27.95%

Hope this helps.

madhusudhan

Lucky you - I have fallen for the trap. See my thread here: http://forums.moneysavingexpert.com/showthread.html?t=1336561

kennyLondon

Thanks NickX for the explanation.