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UK Credit Card Basics

All credit cards should now come with a "summary sheet" detailing their interest rates and charges. This should make it easier to compare different cards. However, it can be difficult to decipher what it all means. That's why we have put together explanations of all the rates and charges associated with credit cards:

APR

The APR is the annual percentage rate of the card. This is the amount of interest you pay on any outstanding balances.

You may find that many cards have up to three different APRs depending on the type of balance you have:

• APR for Purchases: This is the interest rate you pay when you use your card to make standard purchases.
• APR for Cash Withdrawals/Advances: If you use your credit card to get cash from an ATM, you will often pay a different rate on this than for your standard purchases. This interest rate will typically be higher than the purchase APR. If you use your credit card to purchase foreign currency for your holidays, this is also usually treated as a cash withdrawal.
• Balance Transfer APR: Many cards offer a reduced interest rate, sometimes 0%, on any balances you transfer to the card from your other credit cards. The lower interest rate may last for a fixed period or until you complete paying off the balance.

Annual Fee

This a fee charged to your card on a yearly basis. Many cards no longer have an annual fee, however, these may have higher interest rates to offset the lack of annual fee.

If you plan to pay your credit card balance in full each month, you may be better with a higher interest card with no annual fee. However, if you plan to carry a balance each month, thereby incurring interest charges, you may prefer a card with a lower APR, even if it has an annual fee.

Minimum Repayment

The minimum repayment is the minimum amount that you have to pay off your balance each month. This will usually be similar across different cards. For example, £5 or 2% of your balance, whichever is greater.

You should remember that if you only make your minimum repayment each month, it may take many years to pay off your credit card balances, even if you discontinue using the card to make purchases.

Interest Free Period

The interest free period is the maximum number of days from making a purchase that you can go without having to pay any interest. This will in effect be the number of days between one statement date and the payment date on your next statement.

You should note that for almost all cards there is no interest free period for any cash advances/withdrawals. This will most likely include buying foreign currency. This means that even if you pay your bill in full each month, you will still incur interest charges for cash withdrawals.

Other Credit Card Fees and Charges

• Late Payment Charge: This is the amount you will be charged if you fail to meet you monthly minimum repayment on time.
• Overlimit Charge: Your card will have a spending limit. This can vary between around £500 and many thousands. If you go over this limit, however, you will incur an over limit charge. You should be aware that this is a limit for your current balance, rather than how much you can spend a month. It can be easy to go over the limit one month, before your payment for the previous month's statement has been credited to your account.
• Cash Advance Charge: In addition to the interest you will have to pay on a cash advance, you may also have to pay a fee. This will usually be a percentage of the amount of the advance with a minimum charge of around £2.
• Foreign Exchange Charges: When you use your card for purchases on holiday you may incur a foreign exchange charge. This will usually be a percentage of the amount you spend.