How much are you paying for your credit?

If we borrow on a credit card, how much are we actually paying for the privilege? We all see the various APR's advertised, but what does it actually mean? And are we paying far too much?

If we were all eligible, we could go out and get a 0% APR credit card, spend, pay no interest, and then move the balance to a new card before the 0% deal ends, and get another 6 months or so of free borrowing and so it goes on, these people are known as rate tarts. You actually pay back the balance on the card, not the interest slapped on top. But, to get these deals you often have to be earning a minimum salary, have a squeaky clean credit history etc. Those of us who do not qualify can pay up to 39% APR! The higher the interest rate, usually means that the card is designed and marketed at those with a poor credit history or on a low income. The providers say the high rate of interest reflects the greater risk in lending, which is understandable, but is a 40% increase really justified? These cards also have annual fees and high penalty fees if you pay late etc. Some may say that people who are charged these high interest rates are doing so through their own making ie not repaying what they owe, but surely the should be a tighter control on what these companies can charge. Often, they have their customers over a barrel, no other providers will offer them credit, so they are stuck with them, and they know this. Its not just credit cards that apply in this category. Provident, the doorstep lender charge up to 177% APR! Again, the average customer who would borrow from such a lender would be what is know as "sub prime" and would not have anywhere else but a loan shark to turn to. In many ways Provident are making a very sizable profit out of vulnerable customers, but, they do so in a professional way, IE friendly doorstep collections, no hassle applications without credit checks etc. But you will pay a dear price for it. But don't think that once you become a customer and pay your balance off on time each month that you will automatically get a lower interest rate as you are no longer such an unknown risk. Not so, in fact in some cases it may even go up! Capital One have an interest rate of 29.9% on their original Classic card, this is now going up to 34%! A 5% rise, even for existing, good paying customers. Quite a hike! Just be wary when taking out these cards and loans, factor in the high cost of this borrowing and you can work out if you can actually afford it.