Credit cards - video transcripts

  • 1.
    How a credit card works

    Unlike a debit card, which uses the money in your account to pay for things, a credit card borrows money, which you’ll then need to pay back later. So it’s important to choose a credit card that’s right for your needs. You’ll usually be charged for borrowing in two ways:

    • Interest, which is worked out as a percentage of the money you’ve borrowed.
    • And other fees, which can be standard or charges for things like late payments.

    Every person gets a credit limit for their card. This is the maximum amount a credit card will allow you to borrow at any given time and is based on your personal circumstances.

    For example, say John has a new credit card with a credit limit of £1,000. He can use this to repair his car for £500 then pay this off over time. 

    Every month, John will get a credit card statement that tells him his overall balance, how much his minimum payment is and the due date he needs to pay by.

    If he pays off his entire statement balance before that month’s due date he won’t be charged interest at all. However, if he pays it back over a longer period he’ll pay interest – unless he happens to have an interest-free offer.

    A credit card lets you change how much you pay back each month depending on your circumstances.

    So if one month John’s budget is particularly tight he can choose to pay only the minimum payment. This is the minimum amount his credit card provider will let him pay towards his balance each month.

    However, if John regularly pays more than his minimum payment, he will clear his balance faster and pay less interest on the money he borrowed.

    That’s why we recommend paying as much as you can every month.

    So, if you use it responsibly, a credit card can be a helpful tool.

    For example, you can furnish your new house whenever you move in, then pay for it over the course of the year. Or, if you have existing borrowing, but see a lower interest rate offer, you could reduce your outgoings by transferring your balance to a credit card with another provider.

    For purchases over £100 and up to £30,000, credit cards offer protection under Section 75 of the Consumer Credit Act. So if there’s a problem with your purchase, your credit card provider could help you get your money back.

    Thanks for watching.

    Visit lloydsbank.com/creditcards for more information on credit cards.

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  • 2.
    What is APR?

    APR stands for Annual Percentage Rate.

    It’s important to understand your APR, because it tells you how much your borrowing will cost you over the year as a percentage of the money borrowed.

    The higher the APR is, the more expensive it’ll be for you to borrow.

    The lower it is, the less expensive it’ll be for you to borrow.

    APR includes the interest you’ll pay on your borrowing as well as other fees you can expect to pay like any application fees or standard card fees.

    But it doesn’t include extra charges, such as fees for cash withdrawals or late payments.

    When you see the word ‘Representative’ used before APR, this means it’s the rate that most people will receive.

    This rate isn’t guaranteed for everyone, but it is a useful way to compare different cards from different providers and the rate offered depends on an assessment of your personal circumstances.

    Representative APR calculations all follow a set of assumptions which we can show you with help from Saffia.

    This Representative APR example assumes that Saffia gets a new credit card.

    On day 1 of using her new card, Saffia makes a card purchase of £1,200. And over the next year, she pays it back in equal payments plus any interest charged, with no other spending. However, depending on the credit card she chooses, the cost of this borrowing could vary.

    For example, Saffia might pick credit card A.

    This offers her a standard purchase interest rate of 18.9%, with no annual card fee. As a result, the Representative APR is 18.9%.

    On the other hand, if she selects credit card B, her standard purchase interest rate is still 18.9%, but with an annual credit card fee of £150.

    The extra fee is factored into the Representative APR of credit card B, which is higher at 31.5%.

    This means that using credit card B will cost Saffia more. Although, it’s possible she may get other benefits with this card.

    Thanks to Representative APR, we can quickly and easily see the cost differences between these two cards.

    But remember after all this, you should still do comprehensive research before picking a credit card that’s right for you.

    Thanks for watching.

    Visit lloydsbank.com/creditcards for more information on picking the right card.

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  • 3.
    What are credit card interest rates?

    When you borrow money on a credit card, you’ll be charged interest.

    The amount of interest you’ll pay is worked out as a percentage of the money you’ve borrowed.

    This percentage is called your interest rate. The higher it is, the more expensive it’ll be for you to borrow. The lower it is, the less expensive it’ll be for you to borrow.

    But it's important to note that this interest doesn’t include any fees and other extra charges.

    For credit cards, interest rates can be broadly presented in a couple of ways…

    Firstly: the simple interest rate.

    This is the actual rate used to calculate how much interest you’ll pay. You’ll see the simple rate shown as either a monthly rate, or an annual rate also known as the Simple Annual Rate (SAR).

    SAR is usually divided by 365 to calculate how much you’ll be charged every day.

    The second type of interest rate is the Annual Equivalent Rate (or AER, also known as ‘Per annum’).

    AER shows the effect of ‘compounding’ the simple rate over one year. Compounding is when we add interest to a balance, increasing the
    total amount that future interest charges may apply to.

    Depending on how you use your credit card, the amount of interest you’ll pay could vary. For example, there can be different rates for purchases, balance transfers, money transfers or cash transactions.

    You’ll find details of interest rates and how interest is charged on your latest statement, or in the terms and conditions of your account.

    Now, let’s look at an illustrative example to see how card purchase interest rates work in practice.

    Dan has a new credit card with a Simple Annual Rate of 20% on card purchases.

    Dan spends £1,000 on Day 15 of the first month with his new credit card.

    On Day 30, his first credit card statement arrives.

    This first statement shows Dan has until the 25th day of the next month – Month 2 – to at least make his minimum payment of £25 or to make sure he doesn’t pay interest on his purchase, to clear his full balance on time.

    On Month 2, Day 25, Dan pays only his £25 minimum payment. This means the interest charged on his Month 2 statement is calculated
    from Month 1, Day 15, when he made his purchase.

    It is calculated as follows.

    • If we use the 20% Simple Annual Rate to calculate the interest… on his £1,000 balance from Month 1, Day 15 until Month 2, Day 25 it will be 54.79p of daily interest.
    • And when Dan made the first minimum payment, the daily interest on his balance of £975 was reduced to 53.42p from Month 2, Day 25 until Month 2, Day 30.
    • So, in total, the daily interest charged so far on his Month 2 statement is £25.12.
    • And he’ll continue accruing daily interest on his monthly balance until he clears it.

    But if Dan regularly pays more than his minimum payment he’ll clear his balance faster and pay less interest on the money he borrowed. That’s why we recommend paying as much as you can every month.

    Please note that not all credit cards have the same number of days to pay or statement on the same day as in this example. This can vary, so be sure to check your card’s terms and conditions.

    Thanks for watching.

    Visit lloydsbank.com/creditcards for more information.

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  • 4.
    What is a balance transfer?

    If you’re looking to keep all of your credit card borrowing in one easily manageable place. If you need more time to repay
    what you owe on existing credit cards or if you’re currently paying a high interest rate on store cards or other credit cards a balance transfer could help.

    A balance transfer moves your balance from an existing credit or store card to another card with a different provider.

    Balance transfers can help you move multiple credit card balances onto a single credit card, giving you only one monthly payment to manage. Or to move your balance to a card with a lower interest rate, potentially reducing your borrowing costs and giving you more time to pay things off.

    You can transfer a balance as little as £100, the minimum amount usually allowed.

    While the maximum is usually 93% of your credit limit to leave room for any potential interest or fees.

    There are 2 main costs of a balance transfer:

    • Your transfer fee, which is a percentage of the amount you’re moving added on to your balance at the time of the transfer.
    • And interest, which you’ll pay over time until your balance is cleared. This is based on your balance transfer interest rate.

    Sometimes, you’ll find a credit card with an interest rate as low as 0% for a set period of time as part of an introductory or promotional offer. But once the offer runs out, any remaining balance will be charged at your standard balance transfer interest rate until repaid.

    To help you make an informed decision, at Lloyds Bank we’ll always tell you your balance transfer fee and interest rate up front.

    Now, let’s see how a balance transfer with an introductory or promotional offer works in practice with help from Elliott.

    Elliott has just got a brand-new credit card offering him a 0% balance transfer interest rate for 12 months on all transactions
    made in the first 90 days. His balance transfer fee is 3%.

    Elliott also has £2,000 of existing balances spread over two cards both with annual interest rates of 20% per annum.

    If Elliott keeps his balances on his current cards, paying £200 per month every month, it will take him 11 months to clear them and
    he’ll pay £187 in interest.

    But if he moves his balances to his new card with the 0% introductory balance transfer interest rate, paying his 3% transfer fee he could clear his balances faster.

    If he pays £206 per month, it’ll only take him ten months to clear his balance and he’ll pay the £60 transfer fee with no interest charges at all.

    This means that, in total, Elliott could save around £127 using his 0% interest rate offer on balance transfers.

    But we’ve made a few assumptions.
    Firstly, that Elliot started with a balance of £0.
    That Elliott never breaks his card terms and conditions. That he’s made no other transactions on his new card during this time.
    And finally, that he clears his full balance before his 0% interest rate offer ends.

    If you plan ahead and consider your options, a balance transfer can be a useful way to help you manage your borrowing all in one place.

    Thanks for watching.
    Visit lloydsbank.com/creditcards for more information.

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  • 5.
    What is a money transfer?

    If somewhere doesn’t accept credit cards or if you need funds in your current account to pay for an unexpected bill, for instance
    A money transfer could help.

    Available on some credit cards, Money transfers move money directly from your credit card into your own UK current account and can help you be more flexible with your finances in emergency situations.

    You can transfer as little as £100, the minimum usually allowed. While the maximum is usually 93% of your credit limit to leave room for any potential interest or fees.

    When it comes to requesting a money transfer, there’s two main costs you should be aware of.

    The first is your transfer fee. A percentage of the money you’re moving added on to your balance at the time of the transfer.

    The second is interest, which you’ll pay over time until your balance is cleared.

    Sometimes, you’ll find interest rates as low as 0% for a set period of time as part of a promotional offer. But remember that once the offer runs out, any remaining balance will be charged at your standard money transfer interest rate until repaid.

    To help you make an informed decision, at Lloyds Bank we’ll always tell you your money transfer fee and interest rate up front.

    Now let’s see how a money transfer with a promotional offer works in practice with help from Elisha.

    One month, Elisha gets an unplanned £500 repair bill for her car. Unfortunately, she hasn’t budgeted for this in her current account. Plus, her garage doesn’t accept credit cards.

    However, she has a credit card with a promotional offer. It has a money transfer fee of 3% and 12 months of 0% interest on any money transfers made in the next 30 days.

    To cover the cost of the repair, she makes a money transfer of £500 from her credit card into her current account.

    Now, she can pay for the repair with her debit card

    Including the 3% money transfer fee, which costs her £15. Her overall credit card balance is now £515.

    She can pay this off in 10 monthly payments of £51.50. She can pay it off in one go on her next payday. Or, however she chooses.

    Elisha won’t pay any interest as long as she pays at least her monthly minimum payment, clears her full balance before her 0% interest
    rate offer ends, stays within her credit limit and doesn’t spend anything else on her credit card.

    This also assumes that she had no existing balance on the card to begin with.

    But it’s important to note that if she doesn’t clear her balance before the end of the offer period she’ll pay interest at her
    standard money transfer interest rate.

    Like Elisha, you can use a money transfer to help you stay financially flexible.But be sure to consider all your available options
    to make sure that a money transfer is right for you.

    Thanks for watching.
    Visit lloydsbank.com/creditcards for more information.

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  • 6.
    The Lloyds Bank Cashback credit card

    Introducing the Lloyds Bank Cashback Credit card the easy way to earn cashback on your day to day card purchases.

    Whether you’re buying a morning coffee, a weekly supermarket shop, or even something bigger – use our Cashback Credit card and earn cashback on your card purchases 

    Let’s take a closer look at how it works… 

    Earn 0.25% cashback on your first £4,000 of card purchases per calendar year. 

    Then earn 0.5% cashback on further purchases once you’ve made over £4,000 of purchases per calendar year.

    There’s no limit on the amount of cashback you can earn, and you can keep track of what you’ve earned on your monthly statement. 

    You’ll get your cashback paid to your credit card account automatically every January.

    Check our website for more about our Cashback Credit card – including a handy cashback calculator. 

    You’ll also find it easy to apply online.

    However you use a credit card, you can earn up to 0.5% cashback on your eligible card purchases.

    The Lloyds Bank Cashback Credit card. Enjoy cashback when you spend, swipe or tap.

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Important legal information

Lloyds Bank plc. Registered Office: 25 Gresham Street, London EC2V 7HN. Registered in England and Wales no. 2065 Lloyds Bank plc is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority under registration number 119278.Visit the Lending Standards Board website

We may monitor or record telephone calls to check out your instructions correctly and to help us improve the quality of our service. Calls from abroad are charged according to the telephone service provider’s published tariff. Not all Telephone Banking services are available 24 hours a day, 7 days a week. Please speak to an adviser for more information.

How much we lend and the issue of a credit card depends on an assessment of your circumstances. You must be 18 or over and a UK resident to apply.

Terms and conditions apply to all Lloyds Bank credit cards benefits. Full details will be sent with your card. After each introductory period ends you will be charged at the appropriate standard rate.

Mastercard® is a registered trademark, and the circles design is a trademark of MastercardInternational Incorporated.