Order Of Payments

For example:

You have a balance of £3,000, which is made up of a £1,000 balance transfer at 0%, £1,000 of purchases at 14.9% and a £1,000 cash advance at 18.9%.

This then gives a combined APR of 11.27%. If the balance stayed like this, you would end up paying £338.10 in interest over one year (although this is not actually possible, as you must continue to make repayments).

If you were to make a £1,000 repayment however, most lenders would take this off your balance transfer. This would then leave you with £2,000, of which £1,000 would be charged at 14.9% and £1,000 charged at 18.9%. This would lead to an average APR of 16.9%, paying £338.10!

An exception to this rule

Nationwide credit cards are noted for the many extra features that cardholders receive. If you have one of their credit or debit cards, you can expect any repayment you make to apply to the highest interest rate first. This could make a substantial difference to your overall interest rate. Using the example above:

Your £1,000 payment would be applied to the cash advance, leaving you with a balance of £2,000 made up of £1,000 at 0%, with the other half of 14.9 %.

This gives an effective APR of only 7.95%. This would mean paying £159 interest over the year, saving you £179.10.