How do credit cards work?
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How do credit cards work?I don't understand how the interest in accrued.
If my card's APR was 18.9% (typical) then would that be added to the balance every month, or just every year?
Spend £1000 on a credit card, at 18.9% means I will automatically have a debt of £1189. If I chose to pay the minimum repayment in the first month (say £5) then my balance would be £1184.
However, does that new figure of £1184 get the 18.9% interest added to it as well? In which case, my new debt would be around £1350, despite only taking out the card 1 month ago?
Last edited by Isambard Kingdom Brunel; 02-08-2012 at 12:42. -
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Re: How do credit cards work?Every month.
If you don't want a silly amount of debt either don't use a credit card at all, get one that has 0% interest for x months and keep changing cards to retain that deal or pay off your card every month in full. -
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Re: How do credit cards work?You know there's an interest free period on purchases?
If you're planning on not paying off a purchase for 12 months you're going to get wallet raped by the cc company and should look at hp, bank loans or overdrafts which have a better interest rate.
The apr is a standard calculation that allows you to easily compare the interest rates offered by different companies, they have to emphasise it in their marketing rather than some home made calculation which might allow a company to dishonestly make it's self look cheap. -
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Re: How do credit cards work?Ps if the apr is 18.9% they don't add 18.9% every month... It's a lower amount that adds up to 18.9% over a year. if you borrowed 1000, you'd owe 1189 after 12 months if you never paid anything back. The amount you owed would go increase every month, it's possible to work out what the monthly rate is from apr but it's not as simple as 18.9/12.
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Re: How do credit cards work?To be honest, £1189 after a year seems fine to me. I will pay back some every month, and hope to have it paid off within the year anyway.(Original post by Joinedup)
Ps if the apr is 18.9% they don't add 18.9% every month... It's a lower amount that adds up to 18.9% over a year. if you borrowed 1000, you'd owe 1189 after 12 months if you never paid anything back. The amount you owed would go increase every month, it's possible to work out what the monthly rate is from apr but it's not as simple as 18.9/12. -
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Re: How do credit cards work?What does "on time" mean? 12 months?(Original post by Mr Dangermouse)
If you pay the bill on time there is no interest. -
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Re: How do credit cards work?The same month isn't it?(Original post by Isambard Kingdom Brunel)
What does "on time" mean? 12 months? -
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Re: How do credit cards work?the interest free period something else the cc companies compete over, afaik it's 'upto x days' and you get longer interest free if you buy on the day after the statements are printed.(Original post by Isambard Kingdom Brunel)
What does "on time" mean? 12 months?
If you withdraw cash instead of making a purchase you start being charged interest on that amount immediately. -
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Re: How do credit cards work?Well, I only earn £200 per month after expenditure, so I won't be capable of paying back everything in the same month.(Original post by Mr Dangermouse)
The same month isn't it? -
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Re: How do credit cards work?Essentially it is an instant loan but you can avoid paying interest on.
The APR is the interest after 12 months IF the credit has not be repaid in full.
If you pay back all the credit within the month of the bill being issued, no interest is charged. -
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Re: How do credit cards work?Credit cards are one of the most expensive forms of borrowing out there. Ask yourself if you really need what you're buying, and whether you can't fund it differently.(Original post by Isambard Kingdom Brunel)
Well, I only earn £200 per month after expenditure, so I won't be capable of paying back everything in the same month. -
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Re: How do credit cards work?then stop living beyond your means or accept a rapid growing debt(Original post by Isambard Kingdom Brunel)
Well, I only earn £200 per month after expenditure, so I won't be capable of paying back everything in the same month.
