Which is the higher rate?

MikeAUK

Hi guys,

Which is the higher rate of the below?

20% PA on overdraft

1.873% per month on a CC

celler

Unless I'm missing something the CC is slightly higher at 1.873% .
I.873 times 12 is just less than 22.5%PA.
That is of course assuming everything else is equal.
Transfer Fee for credit card ?
Other money in your current account may offset against an overdraft at times perhaps helping also?

opinions4u

1.873% a month, calculated in the same way as an overdraft EAR, would give an APR of 24.9%.

So the credit card is more expensive.

thenudeone

celler wrote: »

Unless I'm missing something the CC is slightly higher at 1.873% .
I.873 times 12 is just less than 22.5%PA.

The APR is not just 12 times the monthly rate, because interest is calculated and added to the account every month, and then starts to be charged interest as well as the original balance.

There is an example showing the difference here https://forums.moneysavingexpert.com/discussion/comment/51535079#Comment_51535079

The APR of 1.873% a month is (1+0.01873)^12-1 or 24.94%
[^12 means multiplied by itself 12 times]

celler

Thanks was afraid it wasn't that simple hence my 1st line, thanks for the example .
Had just been trying to twist my head round that from googling EAR, to find my error.

Thanks again.