What exactly is the credit card APR? How is it calculated? Should you pay attention to it and is it always a good idea to use the APR or should you sometimes ignore it when comparing credit products?
I'll walk you through exactly how the APR (Annual Percentage Rate) works and the way it's calculated (and note - the calculation is different in the UK to the US because EU legislation prescribes the use of compounded interest instead of simple daily interest that is used in the States).
I'll also show how the APR can be misleading and sometimes not give the full picture, especially for credit cards that have annual or monthly fees.
Often products with these high fees also provide high value benefits and perks. As the APR does not account for the value of these benefits and simply calculates the total cost, the APR can be relatively meaningless for these products.
Lastly, I talk about the way the calculation is done. Credit card APRs are calculated assuming a £1,200 one-transaction drawdown followed by 12 equal monthly repayments to clear the balance in full. Basically it's worked out as though it was a 1 year £1,200 loan which really is not the way anybody uses credit cards.
For this reason, if you use the credit card in other ways - borrowing for shorter or longer periods and having larger or smaller balances, the effective APR you will actually be paying may be very different to the one stipulated in the credit card advert.
I'll walk you through exactly how the APR (Annual Percentage Rate) works and the way it's calculated (and note - the calculation is different in the UK to the US because EU legislation prescribes the use of compounded interest instead of simple daily interest that is used in the States).
I'll also show how the APR can be misleading and sometimes not give the full picture, especially for credit cards that have annual or monthly fees.
Often products with these high fees also provide high value benefits and perks. As the APR does not account for the value of these benefits and simply calculates the total cost, the APR can be relatively meaningless for these products.
Lastly, I talk about the way the calculation is done. Credit card APRs are calculated assuming a £1,200 one-transaction drawdown followed by 12 equal monthly repayments to clear the balance in full. Basically it's worked out as though it was a 1 year £1,200 loan which really is not the way anybody uses credit cards.
For this reason, if you use the credit card in other ways - borrowing for shorter or longer periods and having larger or smaller balances, the effective APR you will actually be paying may be very different to the one stipulated in the credit card advert.
Interesting but you didn’t tell us how the APR is calculated.
You did everything but explain APR. No concrete examples. Nothing. If my APR is 25%, and I purchase £1000 worth of goods this month, how much interest will I pay for that month?
You did everything but explain APR. No concrete examples. Nothing. If my APR is 25%, and I purchase £1000 worth of goods this month, how much interest will I pay for that month?
Just the video title and thumbnail made me laugh
Unfortunately, it still doesn't quite make sense to me. Please check my full comment below:
So the way I've understood this is that say I have a credit card with a credit limit of £500 with a 37.9% APR.
Does that mean that I have to pay 37.9% fees on the card so: 37.9% of 500 = £189/12 = £15
So my monthly payment on my credit card would be £15? + any money I spent on the card through the month?
Look forward to hearing from you!
excellent content sir !!!
Hi, so as I understood, if I pay back everything I've spent in the month APR does not have any effect?
Mate I really like your format, casual but informative. No unnecessary clutter on screen. Subbed. Keep it up bud!