Interest calculations

helenjones833

Morning all,

I have a query regarding the interest that's been calculated on my recent Barclaycard bill.

The balance from last month was £1138.79, of which I paid £800.79, leaving an outstanding balance of £338. My new transactions this month total £714.39.

The APR rate on the card is 19.90%, which they have calculated to make a monthly interest rate of 1.385%. However, the actual interest being charged is £23.64. Where does this high figure come from? It certainly isn't 1.385% of the outstanding balance!

Thanks in advance
Helen.

bengal-stripe

Interest is calculated daily and is based on your daily balance.

So, you had £1138 for x days until you paid off the £800, then 338 for x more days until the CC compiled the new statement.
Over that time you had also a new purchase of £ 714 (or several small ones) that will have hit the account at a certain date.

Over the last month, your will have had a different daily balance for most days of that month.

chattychappy

helenjones833 wrote: »

The balance from last month was £1138.79, of which I paid £800.79, leaving an outstanding balance of £338. My new transactions this month total £714.39.

The APR rate on the card is 19.90%, which they have calculated to make a monthly interest rate of 1.385%. However, the actual interest being charged is £23.64. Where does this high figure come from? It certainly isn't 1.385% of the outstanding balance!

You will have interest to pay on £1138.79 between when the statement was printed and your payment reached them. If you took about 3 weeks to pay, then very roughly this will contribute about £12. I'm guessing you are not taking this into account.

Then you have interest on the balance you didn't pay for the rest of the period (not much because you paid most of it but still about £1) and the subsequent purchases during the period until they generated your statement showing £23.64. It depends when you made them - but it well work out at about £10 on your £714 spend during the month. So we have £23.

So it does sound about right, but we would need precise dates of transactions to be sure. Also calculation methods can vary a bit - perhaps someone can chip in if the calculation method is different for Barclaycard.

It's a pretty raw deal if you pay off most of the balance each month. In this situation it would be better to run two cards - have one you clear each month, and another you pay interest on. Then at least you're benefiting from an interest free period on some of your spend. By using just one card and not paying it off in full you get no interest free period at all.

(Or of course look for a card with an intro offer.)

helenjones833

OK thanks for that info guys. I obviously misunderstood the way these things work - I assumed the interest would only start accruing after the due date and didn't realise that the payment "holiday" only applies off the bill in full (which I have always done in the past).

Presumably this means I am now also accruing interest on the total of July's bill, and should pay it off ASAP?

chattychappy

Once you're into the interest thing, the sooner you pay, the more interest you'll save.

If you pay off the full balance, you'll still get some interest on the following statement (same effect again - called residual or trailing interest). How much interest depends on how soon after you get the statement you pay. Once you've paid off the balance in full for a second time, then you'll be back to paying no interest again.

If you come into some cash, you can always pay in advance of receiving a statement. But generally you are not supposed to put the an account into credit (and there is little benefit in doing so), so don't "overpay" it.