Originally Posted by
redshift27
The [British] standard official APR calculation has to include the annual fee. This distorts things somewhat.
A similar thing happens in the US if you do a cash advance on a credit card: the service charge is added to the interest on the first month's statement after the advance and converted into an annual rate. So, if your card charges a 4% fee plus 20% interest for cash advances, the first month will show a 66% annual interest rate on the first month, and then 20% annual rate on subsequent months until you pay off the advance. This is because the 4% service fee is considered as interest that covers the month that it was charged, and this works out to 48% if expresses as an annual rate.