Credit card interest
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dantheman2010
Posts: 697 Forumite
in Credit cards
My statement says if I make the minimum payment of £58 the estimated interest applied to the card will be £33, so what happens if I pay £100 off the card?
0
Comments

You'll pay £33 interest and £67 off the principal.0

Ah I thought perhaps the amount of interest would be reduced. So no matter what I pay (other than the full balance) £33 gets added to the balance, nice.0

'Fraid not. The £33 is the cost of having borrowed the money for the last month. But making a larger payment obviously reduces the principal so your interest will be lower next month.0

And it’s an estimated interest figure because they don’t know what day you will pay your statement on and interest is calculated on a daily basis.0

dantheman2010 wrote: »Ah I thought perhaps the amount of interest would be reduced. So no matter what I pay (other than the full balance) £33 gets added to the balance, nice.
That is incorrect.
That £33 is ESTIMATED interest and the provider is going on the assumption that you will make payment on the very last day that the payment is due.
Card interest is calculated daily but only actually applied to the account on the statement day.
If you pay prior to the due date, there will be less principal when the interest is calculated so the actual interest applied to the account will be less than the estimated interest as the assumption that you will pay on the last day is not valid.
Make sense?0 
Fiddlestick wrote: »...the provider is going on the assumption that you will make payment on the very last day that the payment is due.0
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