APR Confusion

When consumers choose a credit card the obvious way of comparing them is to look at the annual percentage rate or APR. That tells you the interest rate for a year's worth of credit; but consumer organisation Which? says APR alone is very misleading. Companies have different interest free periods and charges are worked out using at least six different methods - all very confusing.

According to Which?, two cards with similar APRs can charge very different amounts of interest. Someone borrowing £500 on an HSBC MasterCard with a 15.9% APR could pay £58 in interest charges. Using a Sainsbury's MasterCard with the same APR could cost as much as £83 - a significant difference.

Alena Kozakove from Which? said: "Some companies start charging interest on the day a purchase is made. Some companies start charging interest on the day the purchase is posted to your account. Some companies offer an interest free period, some don't. Some offer only a conditional interest free period. There are up to twelve different features that distinguish these methods."

Last year the Office of Fair Trading ordered credit card companies to cut the amount they charge for unauthorized borrowing. Now its got 90 days to decide whether to order a further enquiry into the transparency of credit card charges.