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Working out interest from APR

by ceriwilliams 24 January 2012 |

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Hello.
I hope someone can help me. I don't really understand how to work out how much interest I'll be paying on my credit card. If I borrow £1500 and my APR is 23% (a lot Iknow, but far better than my 39% old card) how much interest will i have to pay each month?
I'm trying to work out if it's best to borrow from my overdraft (that would cost me £30 a month) or on my credit card. Yes, i know i should try not to borrow anything at all, but with two children, i have to occasionally, i'm just looking for the cheapest option available to me.
Thank you x

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824

MikeGG1 posted
Ceri

£30 a month for a £1,500 overdraft does seem high. Could you check that, please?

Mike
Posted on 25 January 2012 | Love 0 loves Report
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ceriwilliams posted
Hi Mike, I have a halifax current account and the charge for an overdraft of up to £2500 is £1 per day, so in a month that would be £30. Is that a lot then? I thought I was getting a good deal :/
Posted on 25 January 2012 | Love 0 loves Report
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MikeGG1 posted
Ceri

That works out at 15% for £2,500 which is reasonable, but the lower the amount outstanding, the higher the equivalent rate. For £1,500 it would be 25%.

Consequently, the break even amount between your accounts would be at about £1,550. Above that you are better with the overdraft and below that with the CC account.

However, that assumes a constant level for the month, which never happens. Your current account will your monthly income going in, boosting the balance and then it would gradually reduce during the month. If your income would take you out of the red for a few days, that would reduce the cost of the overdraft, lowering the break even point. Also, the lower the overdraft, the fewer days you would be in the red again reducing the cost.

Also, once you fail to pay off a CC account, all new spend gets charged immediately.

Could you manage to clear your need for credit in a year, or so? If so, consider getting a Money Transfer card (that is a Balance Transfer CC which allows transfers to a current account). That could boost your current account so that it doesn't go into the red and you are able to pay your monthly CC transactions (on your present card) and enough on the new card to clear it by the end of the interest-free period. You would pay about 4% which would be about 8% APR if cleared in a year.

That would be more flexible because you would only have to pay the minumum each month on the new card. You could keep a reserve building up to settle the remainder of the transfer before the end of the period. You could even dip into that reserve in emergency, provided that you replaced it the next month.

Mike
Posted on 25 January 2012 | Love 0 loves Report
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JoeEasedale posted
Follow this topicFollowing this topic Q&A » Credit cards
Working out interest from APR
ceriwilliams
by ceriwilliams yesterday | Comments 3 comments | Love Love 0 loves

Hello.

I hope someone can help me. I don't really understand how to work out how much interest I'll be paying on my credit card. If I borrow £1500 and my APR is 23% (a lot Iknow, but far better than my 39% old card) how much interest will i have to pay each month?

I'm trying to work out if it's best to borrow from my overdraft (that would cost me £30 a month) or on my credit card. Yes, i know i should try not to borrow anything at all, but with two children, i have to occasionally, i'm just looking for the cheapest option available to me.

Thank you x
-------------------------
You are trying to compare apples with Pears. Overdrafts often have charges, usage fees, arrangement fees etc which are nothing to do with the APR at all.

Far better never to use an overdraft and only spend what you have got rather than borrow from your future self.
Posted on 26 January 2012 | Love 0 loves Report

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