Card users urged to look beyond APRs

Consumers shopping for credit cards were today urged to look beyond headline figures, as the lowest interest rate does not always offer the cheapest borrowing.

Research by the consumer group Which? showed the way interest is calculated by providers can mean that cards lower down the best buy tables sometimes offer better deals than those above them.

And it said the industry should introduce a standard way for interest to be calculated, so consumers were able to compare deals fairly.

Which? compared the cost of borrowing on Cahoot's credit card with an interest rate of 11.8% with the cost of keeping a balance on HSBC's card with a rate of 13.9%.

Although the rate on the HSBC card was more than 2% higher, anyone borrowing £2,800 over a year and paying off the balance in full every four months would pay £38 in interest, compared with £40 with Cahoot.

The group found that among card providers there were 14 different methods of applying interest.

While some charge interest from the day you make a purchase, others wait until they pay the retailer, usually several days later. And although some companies charge interest on money owed from the previous month only up to the date they produce your bill, others charge interest until they receive payment.

To complicate things further, not all providers charge interest on interest accrued in previous months.

Among the fairest companies, said Which?, are HSBC, Liverpool Victoria and Saga. In contrast, American Express, Cahoot, MBNA and Halifax were named among the meanest.

Which? is calling on card providers to introduce a single way of calculating what consumers pay so cards appearing on the best buy tables really do offer the cheapest borrowing.

"It's ludicrous that a card with a lower interest rate can cost more than one with a higher rate," said Malcolm Coles, editor of Which? magazine.

"Which? wants the credit card industry to use one standard way to charge interest so consumers really can choose the cheapest card."

Sandra Quinn, spokeswoman for the card issuers trade body Apacs, said while different options were being looked at "any standardisation might hurt customer choice".

Information about how interest was charged and payments were allocated were included in credit card summary boxes, she said.

And she added: "The headline APR doesn't necessarily give the lowest rate, but that is something providers are required to quote by law."