Credit card newbie!

MrD10de

Hi all,

I'm looking to apply for my first credit card through my bank, and before I do I'm just seeking a bit of explanation on the different interest terms I see associated with them. APR, Purchase Rate, etc, and how they are calculated/applied.

Thanks in advance for for any assistance supplied

[Deleted User]

There is generally a rate for purchases, and a rate for cash. Cash is often higher, though they can be the same.

The interest is calculated on your balance on a daily basis and added monthly to your statement. It's waived if you clear in full each month.

The APR will reflect the purchases rate.

MrD10de

Okay, so the purchase rate is simply a percentage fee applied to each transaction I make (that may vary depending on whether I am buying something in a shop or taking cash out of an ATM.). Got it.

When you say "the APR will reflect the purchases rate", what do you mean by that? Does that mean the APR changes with how many transactions I make?

[Deleted User]

No - it means that the APR will be the same as the purchases rate.

So if your purchases rate is 19.9% and your cash rate is 24.9%, the APR of the card will be 19.9%.

MrD10de

Ahh, gotcha. I mis-read it the first time.

Finally, are the terms 'interest' and 'APR' interchangeable? Just to help me ask better questions in future.

[Deleted User]

Sometimes. APR refers to the rate being charged. Interest can mean that, but can also mean the amount (in pounds) you're being charged.

Dobbibill

Interest is what you will pay, APR is the % rate used to calculate it.

Best way to use a CC is to purchase on it instead of a debit card and pay off in full on the due date, thus avoiding any interest.

Marcio45

Be aware that purchase rate or APR are the annual rate. If it is 18.9% APR it doesnt mean you will pay £18.9 interest in one month for a £100 purchase.

The APR is divided by 12 months, so 18.9% APR annual will be 1.57% approximate per month. So you would pay £1.57 interest for a purchase of £100 in a month. Although credit card rules say that if you pay full balance on the statement you wont be charged interest the month after.

Generally, withdrawing money from cash machines is a very bad deal. The interest rates are often higher, and you dont get the perk of paying no interest if statement is paid in full. On top of that there is usually a fee of 3% of the money withdrawn.