Monthly interest rates and APR - calculation

[Ethel]

This is in respect of balance transfer. Many charge 3% as a one off fee to transfer balances from one credit card to another.

Assuming I transfer �1000, I will pay �30 fee. My question is:

What APR would be needed to pay interest totalling �30 in a whole year - �2.50 per month?

[kempie]

Providing the APR repayment was compounded monthly, then �2.21 p.m. would result in a total end-of-term repayment of �29.99

[Ethel]

thanks kempie

But what does that make the APR as a per centage?

[kempie]

The lack of a 'borrowed quantity' complicates things a bit.

In simple APR terms, when �1000 requires an interest repayment of �30 over a 1 year term, then that is by definition an APR of 3%. If the 'lender' specifies 12 regular monthly instalments for this repayment then they would each be of �2.50

However, with a balance transfer there is no term on the payment of the 3% fee and there is no loan to define the term. You can pluck a figure out of the air - is it repaid over 1 month, 1 year, 2, 6?

If you wish to use 1 year as the comparison to a loan then that APR is 3%.

[Ethel]

Thanks Kempie - I am trying to determine whether 'interest free' balance transfers are quite the bargain they seem to be with the 3% fee, which is loaded on to the balance straight away, so the �1000 debt is now �1030.


So it would seem a 3% fee is (more or less) the same as a 3% APR.

Many thanks