Understanding P.A over 36 Months

paul2979

Hi 

My Credit card is offering 3.9 % P.A for 36 months.

I am not great with Maths.

If I borrow 5k on this card and then only pay back the minimum payment each month.

How much interest will I have paid over 3 years?

Is it 5k x 0.039 = 195 , then x 3 years = 585 with the 5k still to pay.

I know I should pay off as much as possible each month, but I am trying to work out what happens if I can only pay the interest.

Thanks 

Paul

paul2979

Sorry I mean just pay the interest amount off each month

Brie

What's the minimum you need to pay according to the T&Cs?  It won't be just the interest as they will require you to pay towards the principle as well.  I assume this is a zero fee balance transfer?  Or?  Let me know and I'll do the maths for you.

QrizB

Your calcs look good as an indication. The exact value may vary slightly depending on your payment date.

As Brie says, your minimum payment will (or should be) more than the interest.

Brie

Given that you get a monthly statement and monthly interest calculations I always take the interest rate and divide by 12 - not completely accurate but a good indicator.  So in the first month there will be 5000 x 3.9%/12 = 16.25 interest charged.  

Let's say the T&Cs state 2% of the balance must be paid every month.  Your first month's balance will be 5000 so you'll need to pay at least £100.  Your new balance for the next month will be 5000 + 16.25 - 100 = 4916.25.  NOTE: If you don't pay the minimum balance every month you are likely to lose your 3.9% rate.

Each month the interest will be a bit less and so will the minimum payment continuing to decrease your outstanding balance.  After 36 months you will have paid something like 442 in interest and have an outstanding balance of 2722 still to pay off. 

If you were able to set up a minimum monthly payment of £100 for the entire 36 months the interest would decrease faster and more of your balance would be paid off.  After 36 months you would have paid something like 407 in interest and only owe 1807.

fyi - I've built a spreadsheet in excel to help me with this so still happy to rerun the numbers if my assumptions don't match the T&Cs.