Can someone explain how a credit card works...

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Can anyone explain how a credit card works in simple terms.

I really dont have any idea how they work! Is it like a loan?

I have something that i need to pay off for about £500, if i put it on a credit card (which i was accepted for ages ago but never used) would i be charged it i paid, say £100 a month off until it was paid off?

Yes, interest is applied monthly so you would be charged every month that there was a balance remaining on the card. How much depends on the APR of the card.

Depends on the terms on the card. Yes it is a loan, unlike debit which takes from your account. Credit charges interest on any outstanding amount. But some have different terms on, levels of interest, fees etc.

you spend on your credit card and then you pay it back

you can effectively delay payment until a convenient date for you, but if you don't pay it all off at once on the date set then the credit card people will charge you interest, so your £500 spend will cost you more money in the long run

how much they charge you depends on the interest rate you signed up for.

You get charged interest if the balance isn't paid in full each month. The interest that is advertised is the annual interest- let's say for example 18%

So for ease of math- that's approx 1.8% a month

So let's say you spend £500 and pay £100 the following month- so the balance will be £400 with 1.8% interest on top- so again for ease of math, call it £404.

Can you not just clear the £500 off the card the next month and use the £500 on it for day to day spending? That's what I do. Helped to build my credit rating and have a generous limit now which is there for emergencies.

Whatever you do DO NOT withdraw cash from it- with most cards you are then charged interest daily rather than monthly.

Depends on the card, and what limit you have.
You could pay it off using the card, which would mean that you now owe the CC 500 pounds. You can happily pay that back over the course of several months, but, the CC will charge you for this. If its a normal one, then it could be something simple like 18.5% interest on the amount you still owe. So the first month you pay £100 which leaves £400, but they also charge you the APR, so (18.5x4=74), so you actually still owe them £474. The next month you pay off another 100 and it takes it down to 350ish. This continues until you pay off the loan
Obviously, this would be a rubbish CC to have, and you should use only when you absolutely have to. Its possible to get cards with a lower, and much higher apr. Some come with extra beneffits, but charge you a small amount to use them, for example a fiver a month even iff you havent spent on them.
hth

£500 over 5 months on an apr of 18.9% would cost you £23.

Use this link to put in the actual apr etc.

Thank you.

So if the APR is 19%, will that be 19% extra on top of the £500 and so on until it is paid.

I really don't want to be paying loads extra on top of the £500 or get in a mess with it.

Thank you KT. I thought my math was off.

And ask for a non contactless card. The £30 limit still applies but I had mine stolen a few months ago and didn't realise for a couple of weeks and the bastard that stole it got away with spending a lot more than would of done if it was my debit card

Thank you so much, thats really helpful - i crossed posts.

K109,
That's awful - was there no way you could get your money back

Not to worry OP. Just think long and hard if you can really afford to pay off as much as you are committing to each month as even though on paper it seems like a small amount interest wise it can soon add up!

First time I used one I had to use it for car repairs- I cut the card up as soon as it was paid for as I knew I would keep spending on it. Once the balance was cleared I then starting spending on it day to day- ie petrol, food shopping, paying my phone bill by card etc.

I did get it sorted yes- but nearly had a heart attack when I saw how much they had spent! It was close to £700 where as if they had stolen my debit card they would of only been able to spend about £200 as I have no overdraft.

That's another thing OP- as it's a credit card and technically not your money people have told me they are much more willing to sort the money out if something does go awry. My incident happened and my friend told me she had been scammed by a ticket website- she had paid by credit card and when she contacted the credit card company they were able to sort it out for her.

Banks seemed to be a lot more bothered when it's their own money. Who would of guessed eh?