MSE News: Barclaycard to fix minimum payment blunder

Former_MSE_Guy

This is the discussion thread for the following MSE News Story:

"Barclaycard has reduced some borrowers' minimum credit card payments to a fraction of their debt this month following a computer glitch ..."

Read the full story:
Barclaycard to fix minimum payment blunder

NickX

So basically the new Minimum Payment should be :

0.25% of the Balance + Interest + Charges

They then omitted the "+Interest" from their computer program so that customers were just charged 0.25% of the Balance.

Very poor for a company such as Barclaycard to let such a fundamental error get into the customer domain.

binaryuniverse

as Mozette says. Is it really such a problem if nobody is charged and everything gets sorted out? It's easy to hate but I say kudos to Barclaycard for sorting it out quickly and simply.

3guesses

In the article, it says:

On a £3,000 debt at 17.9% interest, it would take 41 years to repay at a cost of £6,300 by paying 2% of the balance each month.

With a fixed £60 monthly payment, it would take 7 years at £2,100 interest.

By my calculation, 2% of £3,000 IS £60, so the above seems to make no sense. Alternatively, if it is saying that if you only pay off 2% of the balance each month, you will in fact NEVER pay it all off...

Eric_Pisch

3guesses wrote: »

In the article, it says:



By my calculation, 2% of £3,000 IS £60, so the above seems to make no sense. Alternatively, if it is saying that if you only pay off 2% of the balance each month, you will in fact NEVER pay it all off...

but as the balance is reduced the min payment would be reduced, by keeping a a fixed payment the interest and payment period are slashed

so in this example by keeping the payment to the highest / starting min payment 000s are saved

3guesses

Eric_Pisch wrote: »

but as the balance is reduced the min payment would be reduced, by keeping a a fixed payment the interest and payment period are slashed

I am not disputing this, but it doesn't address the point I raised, namely that the two statements made in the article are nonsensical when taken together.

Eric_Pisch

3guesses wrote: »

I am not disputing this, but it doesn't address the point I raised, namely that the two statements made in the article are nonsensical when taken together.

they make perfect sense to me as I explained.

3guesses

Eric_Pisch wrote: »

they make perfect sense to me as I explained.

If you pay off "2% of the balance each month", then at the end of EVERY month, you still have 98% of that month's balance outstanding, ie you NEVER, EVER end up paying off the balance, so no, I'm afraid your explanation doesn't make any sense...

olly300

3guesses wrote: »

If you pay off "2% of the balance each month", then at the end of EVERY month, you still have 98% of that month's balance outstanding, ie you NEVER, EVER end up paying off the balance, so no, I'm afraid your explanation doesn't make any sense...

Barclaycard apply monthly interest so in theory if you never spend on the card once you have run up a debt and only ever pay 2% off the balance, as long as you pay it by the payment date you will eventually pay the card off.

3guesses

olly300 wrote: »

Barclaycard apply monthly interest so in theory if you never spend on the card once you have run up a debt and only ever pay 2% off the balance, as long as you pay it by the payment date you will eventually pay the card off.

OK, I see the assumption that has been made: you have to ROUND UP the amount you pay off each month.

For example, when you get down to an outstanding balance of, say, 5p, 2% of 5p is 0.1p which obviously you can't pay off, but if you pay off the minimum that is physically possible, ie 1p (= 20% of the outstanding balance), you will eventually pay off the balance.

If you pay off 2% of the balance each month, the oustanding balance next month (assuming no interest) will be 98% of that month's balance, so the formula for the outstanding balance at month n is:

A x (0.98 ^ (n-1))

where A is the initial balance, and ^ means "to the power of"

And this only tends to 0 as n tends to infinity, ie theoretically you would never actually pay off the balance by paying off exactly 2% each month...

NickX

3guesses wrote: »

If you pay off 2% of the balance each month, the oustanding balance next month (assuming no interest) will be 98% of that month's balance, so the formula for the outstanding balance at month n is:

A x (0.98 ^ (n-1))

where A is the initial balance, and ^ means "to the power of"

And this only tends to 0 as n tends to infinity, ie theoretically you would never actually pay off the balance by paying off exactly 2% each month...

Ofcourse mathematically you are correct, but as I think you know this would not be how it works in practice. Once the balance is less than £5 there is usually a clause that states that the Minimum Payment would equal the Full Balance and at that stage you would clear the balance.