How that 'cheap' credit card could cost you dear

Attractive annual percentage rates, or APRs, can end up costing far more than borrowers think, claims consumer watchdog Which?

It says the confusing different ways in which banks and credit card firms work out how much to charge customers 'cannot be trusted' and are costing consumersup to £400million in excess charges each year.

Which? has lodged a complaint with the Office of Fair Trading over the alleged rip-off.

The APR is supposed to make it easier for consumers to compare credit deals.

But Which? said the top 20 card providers - who account for 90 per cent of the market - calculate interest charges in 12 different ways, meaning a 'lower' APR can prove dearer than a 'higher' one.

Alena Kozakova, of Which?, said: 'Two people who have two different cards with the same APR, and who use their card in the same way, could be paying very different levels of interest.'

Which? says that while an HSBC card with an APR of 15.9 per cent costs a borrower a year's interest of £58, an American Express Nectar card with a lower APR of 12.9 per cent would cost £68 over the same period.

Which? has identified six features which affect the cost of credit, some of which can be used in more than one way to produce the total of 12 different interest calculation methods. An APR applied to the same amount of spending can produce a different interest charge depending on whether:

An interest-free period is offered or not.

Interest is charged until the date of repayment in full or until the statement date before the cardholder repays the balance in full.

Interest is calculated on a monthly or daily basis.

Interest starts being charged from the date a purchase is made or the date it is posted to the account.

Interest is charged until the day before a statement is produced, or until the day on which the statement is produced.

The balance includes interest charged on the previous month's statement.

Which? wants all credit cards to carry an unconditional 'interest-free' period on new purchases, and interest calculation to be more transparent.

The banking trade organisation, APACS, said: 'Some people prefer to have a lower APR but pay earlier, others might like a slightly higher APR but only want to pay interest on the amount left outstanding'.