Interest rates confuse me!

tbourner

I know this has been done a lot already, and TBH I sort of had my head around AER and EAR and APR, but now Lloyds have changed their pricing, so I still have the 12.3% EAR but I have a £5 per month OD usage fee as well, so is that worse than my 15.9% credit card? A lot worse? What about if I overpay my CC by double the minimum? Or pay that amount into my OD instead? AAarrrrrggghhhhhhh!!!!!

Hypothetically I have £3000 in my OD, and £2000 on my credit card. I can pay over £200 onto the credit card and clear it within a year, but it's on 0% balance transfer for most of that! So should I pay that £200 into my OD instead but have to wait 2 years before it's cleared? And then still have the CC to do after at 15.9%? I can't work out how the £5 a month affects it and what's the best option!!

mdr86

OK, just to check my understanding of what you said:
- The overdraft costs 12.3% EAR, plus £5 per month
- The credit card is currently on 0%, but will jump to 15.9%
If this is correct, how long does the credit card have left at 0%?

That said, over a year the £5 charge adds up to £60, which is 2% of £3000, so I *think* the overdraft is effectively 14.3%. But as you pay it off the effective rate will increase as the £5 becomes more significant as a percentage of what you have left to pay...I hope this makes sense!

tbourner

mdr86 wrote: »

OK, just to check my understanding of what you said:
- The overdraft costs 12.3% EAR, plus £5 per month
- The credit card is currently on 0%, but will jump to 15.9%
If this is correct, how long does the credit card have left at 0%?

That said, over a year the £5 charge adds up to £60, which is 2% of £3000, so I *think* the overdraft is effectively 14.3%. But as you pay it off the effective rate will increase as the £5 becomes more significant as a percentage of what you have left to pay...I hope this makes sense!

Yep that's right. 0% is until August I think.
I guess I'm better off paying the overdraft until the 0% ends then switch to paying that, just a bit annoying that I'll then have the whole CC to pay off and still be paying £5 per month for an even longer time!

mdr86

Yes, that had been my guess...give me a few more minutes and I'll have a spreadsheet to check it

mdr86

OK, my spreadsheet tells me it makes very little difference which you pay off first! It doesn't implement minimum repayments, but with what it has, paying OD until 0% period ends, then paying off CC, then finishing paying OD (what you suggested) would cost ~£816, paying CC then OD would cost ~£822, and paying OD then CC would cost ~£826.
(that's using £3000 OD, £2000 CC)

tbourner

Thanks for that, that helps. It's obviously more complicated than that as my payments may go up or down - I think I'll likely choose the middle road option and pay off the card first, so I can get rid of it!!