confused by EAR/APR

FinanciallyChallenged

Hello,

I have a balance of £1500 on a credit card at an APR of 17.9%. It's recently accrued (but already statemented) so I haven't paid any interest on it yet. I usually pay this card off in full, but this month I made an unusually large purchase.

I made this purchase with the intention of transferring the balance to another credit card I have (with another provider) which has a 0% balance transfer offer until December 2013. There will be a 3% balance transfer fee.

I am hopeful that I could pay off the full balance within 5 months. I understand that the balance transfer fee will be £45. What I am not sure about is how much it would cost me in interest if I keep the balance on the card with the 17.9% APR and pay it off over 5 months (at a rate of roughly £300 per month). I assume it would be more than £45 but I just want to be sure that I am making the most economical decision by transferring the balance.

As a further possibility, I have two overdraft facilities available. One has a limit of £1000 (currently not overdrawn) and an EAR of 18.9% - this is my main account that I get paid in to so I have no concerns that this facility would be withdrawn. My other overdraft facility is has a limit of £1500 (with £1450 of that available) at a 0% rate (until November 2013) - however this is my old student account which I don't really use very much (although I have done a bit recently) so I am concerned that the facility could be withdrawn earlier than planned (although it has been pretty much constantly overdrawn for the last three years with minimal activity and the overdraft hasn't been called in so far). I'd rather not do anything which is in breach of my bank's terms and conditions! I also have £400 in an ISA at 0.15%.

I have no concerns about paying off the £1500 balance over a few months and my finances are healthy other than this. I would just like to know what the cheapest and least risky way to go about it is.

Can anyone advise?

Thank you!

kgeerstick

Hi,
I'm not really sure which would be your best option and someone else may be able to help you better than me but I know what the terms mean if that helps. APR is annual percentage rate so the 17.9% on the credit card is what you'd pay over a year. EAR is equivalent annual rate which is similar term used for overdrafts ao it just gives you an idea of how much it would cost you if you were overdrawn for the whole year.
I think the 0% balance transfer with £45 fee is likely to work out cheaper for you but there might not be much in it - have a look at Mse Credit Card Calculator and enter your individual details to help you compare. I tried to post the link for you but I cant as I'm a newbie.
Good luck.

bigadaj

Probably best to put it onto the new card. 18% apr is about one and a half per cent per month, so your looking at interest of around £22 per month on your current card. If you pay off over five months with regular payments then the balance will be reducing, so probably around £70 total in interest. However the advantage with the balance transfer is that you can take longer to pay off if you are stretched, payi g this off over a few more months won't cost you any more whereas for the current card you might be looking at a tenner or more per month for every extra month.

You need to find a better home for that isa, rates of 3% should be available; if you're disciplined saving into a decent Isa any surplus could be beneficial, stretching the zero deal over a longer or even the full period to the end of nExt year.

YorkshireBoy

It's a no-brainer!

You pay it off with the 0% overdraft...and come back if and when (within the next "few months") the bank gives you 30/60 days notice that they're withdrawing the 0% rate.



To answer your EAR/APR question, they're both the same - and calculated the same - in terms of daily interest...the only difference being that EAR excludes any fees associated with the overdraft facility whereas credit card APRs quoted must include any fees, eg annual fees.

FinanciallyChallenged

Thank you all for your advice. I think I'll use the overdraft. My salary will boost the balance above £0 each month so hopefully they'll have no reason to withdraw it!

ISA-wise, I know I can get a better rate so I will look into that soon.