deano87
Member
Registered: 21st Oct 06
Location: Bedfordshire Drives: Ford Fiesta
User status: Offline
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Right, here's one for you and I think I've got the figures right.
I've just effectively made a purchase of £1,750 on a credit card. I plan to pay off this balance over a period of time, but also by selling some bits from my bike to take larger chunks off.
Now, I planned to make the purchase and when my statement comes through, do a 0% balance transfer deal but with a 5% fee.
So this would be:
£1,750 * 5% = £87.50
HOWEVER the purchase rate on my credit card is 12.4% APR, so this would be (you divide the total APR by 12 months right?):
£1,750 * 12.4% / 12 = £18.08 interest per month, decreasing as the balance is cleared.
If I plan to pay off the credit card over 2 - 3 months, it actually makes more sense to not do the balance transfer. Correct?
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James
Member
Registered: 1st Jun 02
Location: Surrey
User status: Offline
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Correct.
To be 100% accurate you should consider the fact that the interest is continuously compounded, but it won't affect the outcome, it's still cheaper to not to do the BT.
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deano87
Member
Registered: 21st Oct 06
Location: Bedfordshire Drives: Ford Fiesta
User status: Offline
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What do you mean compounded? Calculated on that months balance? So theoretically it gets lower every month?
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AndyKent
Member
Registered: 3rd Sep 05
User status: Offline
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No, other way round. After a month they'll add interest on, which you'll be charged more interest on the following month.
So an additional 12.4% on £18.08 in the second month
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AndyKent
Member
Registered: 3rd Sep 05
User status: Offline
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You need to watch the credit card charges, because some charge interest on the full amount even if you've paid back a part of the balance. They charge it on either the full amount or nothing. Check the T&Cs
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John
Member
Registered: 30th Jun 03
User status: Offline
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Why did you not just get a 0% on purchases card and not worry about any of this if paying off in 3 months?
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Ian
Site Administrator
Registered: 28th Aug 99
Location: Liverpool
User status: Offline
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quote:
Originally posted by deano87
(you divide the total APR by 12 months right?):
No - APR is the result of a calculation based on compounding the flat interest rate over a yearly period.
The actual interest you accrue is the flat rate on the balance, every month.
So if you borrow £1750 and your flat rate is 1%, you will accrue interest of £17.50, and the debt becomes £1767.50
The next month the same happens and the debt becomes £1785.16
If you didn't pay anything off and left it for 12 months then the amount outstanding on your card would be 12.4% times larger than the original borrowing.
In your case, it would cost you £1967, so £217 to borrow £1750 for the year.
However, as you're paying the amount off, you'll not end up paying that much. So instead, decide what you're going to pay off. If you're aiming to have it done in three months, you need to put around £600pm in.
Month 1
£1750 + £17.50 = 1767.50
- £600 = 1167.50
Month 2
£1167.50 + £11.67 = £1179.17
-£600 = £579.17
Month 3
£579.17 + £5.79 = £584.96
- £584.96 = paid off
Total cost to borrow = £17.50 + £11.67 + £5.79 = £34.96
That assumes 1% pm which is probably inaccurate and not at all based on your figure of 12.4%
But yeah, even at 12.4% pa converted to flat properly you're probably still better off not doing the BT.
Re-do that at 2% pm and see how it compares, still better I would think.
Only other complicating factor is that your guess of 3mo may not be accurate, however you'd probably need to keep the debt for a while to spend £87.50 on it.
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deano87
Member
Registered: 21st Oct 06
Location: Bedfordshire Drives: Ford Fiesta
User status: Offline
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Cheers all. And I didn't have time for 0% purchases card to approve, arrive etc.
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Whittie
Member
Registered: 11th Aug 06
Location: North Wales Drives: BMW, Corsa & Fiat
User status: Offline
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Did you buy anything decent?
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deano87
Member
Registered: 21st Oct 06
Location: Bedfordshire Drives: Ford Fiesta
User status: Offline
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Morewood Kalula plus other bits - new bike frame basically, so rebuilding with older parts off my existing bike and selling what I don't need.
And no, couldn't get it through Quidco.
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Graeme
Premium Member
Registered: 26th Jul 04
Location: Northampton
User status: Offline
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Why didnt you just apply for a 0% purchases card?
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John
Member
Registered: 30th Jun 03
User status: Offline
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quote:
Originally posted by deano87
Cheers all. And I didn't have time for 0% purchases card to approve, arrive etc.
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deano87
Member
Registered: 21st Oct 06
Location: Bedfordshire Drives: Ford Fiesta
User status: Offline
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quote:
Originally posted by Graeme
Why didnt you just apply for a 0% purchases card?
quote:
Originally posted by John
quote:
Originally posted by deano87
Cheers all. And I didn't have time for 0% purchases card to approve, arrive etc.
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Graeme
Premium Member
Registered: 26th Jul 04
Location: Northampton
User status: Offline
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It takes a couple of days.
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John
Member
Registered: 30th Jun 03
User status: Offline
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It normally takes more than a couple of days from application to having a working card.
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Carl
Member
Registered: 9th May 04
Location: Jimmy Bennett's la la land.
User status: Offline
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Balance transfer to a card with a lower percentage fee and then pay the balance off over the interest free period?
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deano87
Member
Registered: 21st Oct 06
Location: Bedfordshire Drives: Ford Fiesta
User status: Offline
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quote:
Originally posted by Carl
Balance transfer to a card with a lower percentage fee and then pay the balance off over the interest free period?
No other card I have has a 0% card, unless I apply fir another. Good point...
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