Why is my credit card interest twice what it should be?

Max_Headroom_3

Ok so after a tough year throwing everything at my mortgage I finally got it cleared this month, joy!

Anyway, I decided I'd treat myself to something I'd always fancied, a gurt big plasma TV on the wall.

So basically I thought well I'll wait till I get paid at the end of January, and I'll just buy one.

And then I thought, no, sod it. I've just done something pretty bloody significent, I'd love to have it for Christmas, so stuff it, I'll whack it on the plastic and just clear that next month and if it costs me a tiny bit of interest then sod it.

So, I spent about £1,600 on the TV, bracket, leads, all the nonsense (yes, it is a pretty blimmin big TV! ).

Just got the credit card bill with £1,757 on it (couple of other bits too). Now if I clear it straight away I pay no interest obviously. But if I just pay the minimum (will pay more in fact, but for the sake of the thread) then that's £17-57 leaving a balance of £1,739-43 still to go.

But the bit I don't get is that it says if I do just pay the minimum then "next months estimated interest" is £44-60!!

Now, the interest rate on purchases is 16.95%.

16.95% of £1,739-43 = £294-83.

And if you divide that by 12 to give the monthly amount I make that £24-57

So where are they getting their monthly estimated interest of £44-60 from? (Almost double!!)

And yes, before anyone mentions it, I am aware of the irony of celebrating finally getting completely out of debt by buying a huge girt TV on credit!

It'll be gone when I get paid at the end of Jan, some of it now, most of it then. As I say, just felt it'd be nice to have it over the Christmas hols.

CLAPTON

because you are paying for two months... the first month there is no interest on the bill because if you pay in full then no interest is charged
but if you dont pay in full (even by £1) then the interest accrues from the date of purchase so the next month you will pay for the first and second months interest. thereafter it will just show one months interest.

matthew74

Will it not be 2 months interest if you dont pay it in full this month???

Edited to add beaten by seconds by Clapton!

YorkshireBoy

Max_Headroom wrote: »

So where are they getting their monthly estimated interest of £44-60 from? (Almost double!!)

If you bought the TV the day after your last statement was produced you're getting the maximum 56 days interest free credit (you've already had 30 days up to this statement, and your payment due date is another 26 days away).

56 days is roughly two months.

Max_Headroom_3

Aaahh, I see, that makes sense, thank you.

I assumed (foolishly) that I had a free period up until the payment date, and then the interest went on after that (as in the past I've always cleared it on or before that payment day so never been charged interest).

So basically my "crafty" waiting till just after I received a bill to maximise the "interest free" period was a waste of time because that period is erased for any amount not cleared.

Well you live and learn, thank you all, I understand it now.

Fortunately my mistake has only cost me about £20 extra so not the end of the world and worth knowing.

Crafty sods. :rolleyes:

Max_Headroom_3

Ok, so I'm paying £777 off of it today (within the "interest free" period), so presumably I'll only pay interest on the £962 balance?

And would I be right in expecting that to be about £25?

And so (assuming that's right) if I clear the £962 this time next month it'll have cost me £25 in interest in total?

Does that sound about right? (Maths was never my strong point).

NickX

No, you will still have to pay interest on the full £1757 from the date you made the purchase until the date they receive the £777 into the account.

Then the remaining £762 will continue accruing interest until its paid off in full.

I suspect your interest payment will be closer to £40 rather than £25.

There will also be some Residual Interest to be paid the following month which will represent interest accrued between the next statement and you actually settling the balance in full.

If you can I would advice always paying off in full to avoid interest altogether.

King_Of_Fools

It would probably pay you to see if you can get an overdraft for the other £962 as over such a short period of time it might work out cheaper to put the rest on the overdraft (that way you will still benefit from the interest free period).

Oblivion

NickX wrote: »

If you can I would advice always paying off in full to avoid interest altogether.

And that's the best advice always. Only buy what you can afford today or when the next credit card bill comes in. Paying someone else interest is a self-imposed tax that should and can be avoided with a bit of common sense. Here endeth the lesson from St. Oblivion :A :rotfl: :rotfl: :rotfl:

Dave.

nomoneytoday

The only way to stay interest free is 2 consequtive full payments..

Max_Headroom_3

NickX wrote: »

No, you will still have to pay interest on the full £1757 from the date you made the purchase until the date they receive the £777 into the account.

Then the remaining £762 will continue accruing interest until its paid off in full.

I suspect your interest payment will be closer to £40 rather than £25.

There will also be some Residual Interest to be paid the following month which will represent interest accrued between the next statement and you actually settling the balance in full.

If you can I would advice always paying off in full to avoid interest altogether.

That's amazing, they're sods aren't they?

So basically, if I buy something for £10,000 and then get the bill in and pay £10,000 before the due date I pay no interest (and have had over a month interest free if I time it right).

But if I pay £9,999 instead then I pay interest on the whole £10,000 still, up until the £9,999 payment, and then pay interest on the remaining £1? Not get the £9,999 interest free and then have to pay interest on the £1 over the whole period?

Or have I got that wrong?

Have to say this has been an interesting exercise in how credit cards work, I had no idea as up until now I've always just paid the total off.