Being penalized for paying off balance in full

Joanne_Quigley

Today i contacted M+S in an attempt to understand why i had been charged £30 of interest in a month on a balance of £834.
After about 30 minutes of misunderstanding, they finally told me that the reason i was charged so much was because in the previous month i had paid my balance off in full(£900). Apparently, because i didn't pay the next month off in full also (the £834 month), they charged me interest on the balance i had paid in full(£900). This was a total of £16 in interest on a balance which didn't exist as i had paid it off in full.
They explained that it is common practise with ALL Credit Card companies to charge interest if you don't pay off two consecutive months, so effectively the costumer is being penalized for clearing a balance.
Moral of story being that according to M+S, if you cannot pay off more than one months balance, then don't bother, because you'll be charged.
Did everyone else know this?

DJ1UK

yes, it is common with other cards.

You need to pay off the balance in full before the statement date to not be charged - i think.

DJ

[Deleted User]

:eek: I didn't know that! Thanks for the warning.

grumbler

Just want to clarify ...

Joanne_Quigley wrote:

...they finally told me that the reason i was charged so much was because in the previous month i had paid my balance off in full(£900). Apparently, because i didn't pay the next month off in full also (the £834 month), they charged me interest on the balance i had paid in full(£900).

You misunderstood this. If you paid this £900 and previous balances in full and on time you don't pay interest on £900. As you claim that you paid £900 in full, you pay interest on £900 (starting from the day of every transaction until repaid) only if either

• you didn't pay the previous balance in full and on time

or

• you didn't pay £900 on time

This was a total of £16 in interest on a balance which didn't exist as i had paid it off in full.

If you didn't pay the previous balance in full and on time you lost interest-free period on purchases next month. Even if you pay £900 in full and on time, you still have to pay later some interest on this amount for the period between the statement date and the payment date. This balance did exist during this period.
If you paid previous balance in full and on time, but paid £900 late, interest is added later on this amount.

If you paid £900 in full and on time, no way you should pay interest on the next balance £834 if you pay it again in full and on time.

You write that you paid both balances £900 and £834 in full and they charged interest on both £834 and £900. This can be correct only if you paid one of the balances late.

Joanne_Quigley

The £900 was not paid late. M+S have refunded the £16 interest charged,on the grounds that they have not made it clear to me, or any of their costumers that interest will be charged if you clear a balance one month, but not the next.

sarahlouise210

I just dont get their reasoning........it does not make any sense to me. So..what should we do ..leave £1.00 balance each month? I have only just got a credit card and paid off in full ..I have searched the terms and conditions and can find nothing saying interest will be charged on the previous month(paid in full) if the current month is not paid off in full.

Bossyboots

This is confusing and really hard to get across so I will try to break it down a bit more.

Month 1 - You buy £100 worth of goods. You pay £20 off the account before the due date.

Month 2 - You buy £100 worth of goods. On your statement will be the £100 plus the interest on the £80 worth of goods from the previous month from the transaction dates.

Because you have not paid off the balance of the statement from month 1, you have now lost your interest free period on your purchases for Month 1. So for month 2 you will be paying for your purchases and interest from the date of transaction for the month 1 purchases.

I tought you still got an interest free period on the purchases in month 2, but if you do not, then what M+S are saying is true. So it basically works out that you need to pay your account off in full every month to retain an interest free period. Therefore, leaving a £1.00 balance outstanding means you will never get your purchases interest free. The only way to do this is to pay your account of in full EVERY month. I will check this when I get home and clarify the position on the card I have.

If you settle the account by the due date on month 2, there will still be interest to pay in month 3 as the outstanding amounts from months 1 and 2 will have still been accruing interest between the statement date and the date the payment reaches your account.

I hope that makes it a little clearer (probably not!).

The change to this was clearly put in the T&Cs of my card provider a few months back and is also printed on the back of every single statement. Shame on M+S if they didn't make it clear but I strongly advise everyone to read the bits of paper that come with credit card statements as they often contain a leaflet changing something or other.

mintymoneysaver

Whatever you do, don't leave £1 in there every month, then you'd get charged interest on every single thing that you bought.
I hadn't realised this 'rule' existed until I read the terms and conditions very carefully, but as you say you get the interst on your goods not charged because you paid off in full, but as you did not pay off in full again the next month the interest is re-instated.
So the moral is pay off two months in a row!
Well done on getting your £16 back!

gingercordial

Bossyboots wrote:

I tought you still got an interest free period on the purchases in month 2, but if you do not, then what M+S are saying is true. So it basically works out that you need to pay your account off in full every month to retain an interest free period. Therefore, leaving a £1.00 balance outstanding means you will never get your purchases interest free. The only way to do this is to pay your account of in full EVERY month. I will check this when I get home and clarify the position on the card I have.

Purchases are only interest free between the purchase date and the payment date IF you are paying off that month in full by the due date AND you have also paid off the previous month in full by the due date for the previous month. Per Bossyboots' example, if you do not clear month 1, then you lose the interest free period for month 2. M&S are therefore correct in what they told you. I know this is also the case for my Natwest card and I believe it's pretty standard I'm afraid.

Therefore it's not "being penalised" for paying off in full as the OP's title suggests, it's being rewarded for paying off in full EVERY MONTH, by being allowed to have an interest free period between purchases and payment. If you miss a month, you'll have to clear two full months before you get it back again.

Bossyboots

Agree with gingercordial. I have checked my statement and that is what is says. Mine is a Tesco card.