Credit card question

k++ · 5 Jan 2009 at 20:41

On my credit card agreement it has the following, but I'm a bit unsure on the exact meaning. Maybe someone here could help.

The total charge for credit is £167.46, consisting of £167.46 interest. This is based on credit of £1500 being borrowed at the start of the agreement over one year at the standard interest rate for purchases set out in condition 3.2 below and repaid in equal monthly instalments beginning one month after the start of the agreement.

Now, does this mean on £1500 being borrowed the interest is £167.47? What's the significance of saying this. The interest rate is 21.95% pa for purchases so what's this £167.47?

Cheers in advance

paradigm · 5 Jan 2009 at 20:43

I'd say its fairly obvious that the £167.46 is interest on the original amount borrowed on "credit".

You owe £167.47, and all of that is interest, rather than additional spending on your behalf.

The real question is: Should people with this little understanding of money have credit cards?

Hatter The Mad · 5 Jan 2009 at 20:44

I think that is the non-compounded interest rate - i.e. when you pay off the interest each month, and only the interest.

Strife212 · 5 Jan 2009 at 20:45

paradigm said:
I'd say its fairly obvious that the £167.46 is interest on the original amount borrowed on "credit".

You owe £167.47, and all of that is interest, rather than additional spending on your behalf.

The real question is: Should people with this little understanding of money have credit cards?

Hes saying that 167.47 isn't 21.95% of 1500.

k++ · 5 Jan 2009 at 20:46

I don't owe anything. I don't even own the credit card... yet.

I'm trying to understand the small-print before I agree.

It still doesn't make 100% sense to me yet, maybe you could explain a bit more?

k++ · 5 Jan 2009 at 20:48

Hatter The Mad said:
I think that is the non-compounded interest rate - i.e. when you pay off the interest each month, and only the interest.

Ahh thanks

Ricochet J · 5 Jan 2009 at 20:53

paradigm said:
The real question is: Should people with this little understanding of money have credit cards?

One could argue they know all there is to know about credit and credit cards but didn't understand the wording of the terms and conditions. Which is fair do's as it isn't uncommon for lenders to use jargon when describing the terms and conditions. It's the strategy of the lender - to confuse the customer, lure them in and let them sign on the dotted line.

crazyDAJT · 5 Jan 2009 at 21:19

k++ said:
I don't owe anything. I don't even own the credit card... yet.

I'm trying to understand the small-print before I agree.

It still doesn't make 100% sense to me yet, maybe you could explain a bit more?

don't borrow on credit cards, really bad idea. Pay the balance off in full each month meaning you pay no interest and they don't cost you anything.

mame · 5 Jan 2009 at 21:21

crazyDAJT said:
don't borrow on credit cards, really bad idea. Pay the balance off in full each month meaning you pay no interest and they don't cost you anything.

They do have their uses if used correctly

Mad old tory · 5 Jan 2009 at 21:26

Paying over the odds in interest is not one of them.

Hatter The Mad · 5 Jan 2009 at 21:30

crazyDAJT said:
don't borrow on credit cards, really bad idea. Pay the balance off in full each month meaning you pay no interest and they don't cost you anything.

Why? I earn substantial interest on money I can invest (that would otherwise have been spent on cash purchases) on 0% credit cards.

crazyDAJT · 5 Jan 2009 at 21:34

Hatter The Mad said:
Why? I earn substantial interest on money I can invest (that would otherwise have been spent on cash purchases) on 0% credit cards.

if you are not incurring any interest on them then fine, nothing wrong with that, but the OP says they don't have a credit card, which probably means no credit history which will limit there selection of cards.

therefore they are looking at a bog standard 20%+ interest rate.

k++ · 5 Jan 2009 at 21:34

Hatter The Mad said:
Why? I earn substantial interest on money I can invest (that would otherwise have been spent on cash purchases) on 0% credit cards.

Ditto, it's 10 months interest free. DD for minimum payment, invest the rest.

Assuming it's £1500 there wouldn't be huge gains though, but profit nonetheless.

k++ · 5 Jan 2009 at 21:37

crazyDAJT said:
if you are not incurring any interest on them then fine, nothing wrong with that, but the OP says they don't have a credit card, which probably means no credit history which will limit there selection of cards.

therefore they are looking at a bog standard 20%+ interest rate.

I have had a credit card for 7 years, but it's not interest free and I rarely use it since I have no need to. No idea if it will be grounds for a higher limit.

OllyM · 5 Jan 2009 at 21:50

£1500 is the nominal amount that lenders have to use to calculate the APR under the Consumer Credit Act, that won't be your credit limit necessarily. They use it so that you can 'compare like for like' between cards. But it's hideously complex and means that cards with an annual fee (e.g. the Natwest Black card) end up having a silly high quoted APR which is totally unproportional.