Why could a rate of interest vary from what I actually pay back?
The other (important) factor to take into account for interest rates you see on a credit card is what’s known as compound interest. With compound interest, you don’t just accrue interest on the money you borrow over the course of a year. Instead, the sum you’ll be liable to pay back would increase in year two – as the actual figure would need to include any interest added on to the original interest rate from the first year. This can make a big difference – especially when it comes to borrowing larger sums over a long period of time.
So, let’s say you borrowed £1,000 on credit at an interest rate of 10% a year. It will cost you 10% of the amount borrowed in order to do so. Therefore the cost of borrowing £1,000 over one year would be £1,100.