Can anyone help work out rough interest charge?

newlywed

Ok so I have a huge overdraft now (the bank have merged my credit card into my overdraft to reduce interest).

They said that interest would be at 6.5% on the overdraft.

How much interest will that be a month on £7800 ?

Have tried to work it out by it doesn't come anywhere near their charged amount?

Anyone help me please?
Thanks

YorkshireBoy

6.5% EAR is roughly 0.525% per month.

£7,800 x 0.525% = £40.95

newlywed

Thanks that's nearer what I got when I tried to work it out.

They have charged £60 though. What sort of percentage would that make it?

YorkshireBoy

60 / 7800 x 100 = 0.76% (which is about 9.7% EAR).

Be careful though, because although they say they'll use (roughly) 0.525%, they calculate the interest daily on the closing balance. Your balance will (I assume?) fluctuate throughout the month.

newlywed

YorkshireBoy wrote: »

60 / 7800 x 100 = 0.76% (which is about 9.7% EAR).

Be careful though, because although they say they'll use (roughly) 0.525%, they calculate the interest daily on the closing balance. Your balance will (I assume?) fluctuate throughout the month.

Not really. It will only go down through monthly payments (about £120 a month) to pay off the debt and then back up when they add the interest.

The account is no longer being used - just trying to pay it off!

newlywed

On the phone they quoted it as 8.5% but when they wrote to confirm they said 6.5% that's why I want to know if they've made a mistake at all. Was hoping it was 6.5% and that the debt would go down quicker.

But if they are charging me more than 8.5% I shall want to know why!!!

Guess I'll have to phone them and ask. :rolleyes:

SparciaM

OD are calculated on a daily basis.

So if you have £100 on day 1, then u get 6.5% of that - if that goes to £150 then u get 6.5% of £50, at end of month it's all added up and this gives you your interest. Now 6.5% of £100 is 6.50 - but u wont be charged this as then it'll be devided by days or months as well - is a very complex calculation - but if you ring your bank they should be able to give you the formula. I know at smile, they give out the formula they use.

newlywed

Thanks. I rang the bank to query and apparently the reduction in interest rate hasn't been actioned yet. so from now on it is 6.7% APR.

oldwiring

Also remember that ledger balances are not the same as cleared balances!