Credit card understanding for dummies?

scrubmuncher

I keep reading these leaflets and I still don't get it. I have a Vanquis credit card with a 39% interest thing. I just don't understand what that means, 39% over how long and how much. If I had 100pounds, does that mean I pay them back 139pounds at the end of the month? or the year, or the week. And this 3% on cash is just even more confusing. That apparently gets charged daily.
So I see people on here don't like to do the ork for others so cn anyone point me towards an explanation for like 5 year olds because this stuff just does not sink into my brain for some reason. Sorry to be a pain but I should really learn to understand money better and how to manage myself a bit more maturely.
if you can help then thanks!

YorkshireBoy

The 39% figure you've quoted is followed by 3 letters...APR

The 'A' in APR stands for 'annual'...that's per year.

So that clears one of your questions up. A £100 balance will (roughly) incur £39 interest per year, or £3 per month.

As to the 3% cash advance fee, that's a one-off charge which is added to your balance.

thenudeone

YorkshireBoy wrote: »

So that clears one of your questions up. A £100 balance will (roughly) incur £39 interest per year, or £3 per month.

BUT is calculated in a way that enables you to compare the cost of borrowing money from different lenders. Each lender will have different rules for repayments, so the APR is calculated assuming that no repayments are made.

If you borrow £100 on 1st January you will actually pay less than £39 interest because you won't be borrowing £100 for a year. You'll have to pay a minimum payment of about £4 a month, some of which covers the interest charge and some of which (about £1) will reduce the balance you owe. Once that payment is made you'll only owe £99, so next month's interest will be less.

For a credit card, interest is actually calculated monthly.

The APR is calculated assuming a single starting balance with no repayments (for simplicity and comparability)

IF the monthly interest rate was 2%:

If you had £100 outstanding on 1st January, the statement on 1st Feb would have £2 interest, leaving a balance of £102 (£100 + 2%) ignoring any repayments

The statement on 1st march would be £102 + 2% of 102 = £104.04

The remaining months would be:
Interest 2.08
01/04/2012 106.12
Interest 2.12
01/05/2012 108.24
Interest 2.16
01/06/2012 110.41
Interest 2.21
01/07/2012 112.62
Interest 2.25
01/08/2012 114.87
Interest 2.30
01/09/2012 117.17
Interest 2.34
01/10/2012 119.51
Interest 2.39
01/11/2012 121.90
Interest 2.44
01/12/2012 124.34
Interest 2.49
01/01/2013 126.82 or 26.82% higher than the starting balance.
This card would have an APR of 26.82%
Remember that this is the official way of calculating APR, but you'll need to make monthly payments.

Since interest is added every month, the interest starts to be charged interest, which is why the APR is higher than just 12 x the monthly rate.

39% APR is about 2.8% a month.