Credit Card Chaos
The amount of interest paid on your credit card can vary depending on the way the provider does their sums. Two cards with the (apparently) same interest rate can vary significantly. Read on for more details:
It's easy to compare credit cards. Just choose the best APR (annual percentage rate) and you have the best deal. If you think it's that simple, think again.
In theory, the APR makes it simpler for people to compare the merits of each of the vast numbers of credit deals on offer. Actually the facts are that 9 out of 10 credit card providers work out their charges in a mixture of 12 different and complicated ways. This means that a company offering a lower APR can in fact be charging very much more than an apparently more expensive one. According to the consumer group Which? It's very likely that two people taking out two different cards with identical APR's and using them in the same way could pay different interest rates. Another example shows that whilst an American Express Nectar card with an APR of 12.9% costs a borrower £68 in interest over 12 months, if they used an HSBC card with an APR of 15.9%, they would pay just £58 over the same period.
The Office of Fair Trading has been approached by Which? to investigate what they consider is a "rip-off" because of these different methods of getting at the final charge for credit. Consumers are paying no less than £400million in excess charges every year, simply because of the misleading way in which the products are sold.
If you were to spend £500 per month with the following card providers, their interest costs would be:
A Lloyds TSB card with an APR of 11.9% = interest of £71.
An HSBC MasterCard at 15.9% = £58.
Sainsbury's Bank MasterCard, with the same 15.9% = £83.
These differences are accounted for by differing ways of calculating interest - but how can this be allowed?