Confusion about how Barclaycard interest works

curiousgeorge1

My sister has asked me my advice about her credit card which is a Barclaycard. My understanding of how most decent credit cards work is that firstly, there is an interest free period on purchases, and then the interest will be charged on the balance outstanding and on a daily basis.

However, she tells me that Barclaycard customer service have told her that if she doesn't pay off the FULL amount, then interest is charged on that full amount, even if the payment is only 1p short!

She had about £1500 to pay off all racked up over the last month, so she decided that for now £1200 was all she could manage, leaving £300 balance still to pay. But after them receiving that payment, they estimate the interest charge for next month to be about £20. Her APR is only 12% and she is very confused about how Barclaycard could be charging her so much. She is being charged £20 interest for one month of having an outstanding balance of £300. How can that be right?

If anyone can share their experience of issues like this with Barlcaycard, I'd be really grateful. Apart from telling my sister to get a different credit card, I don't know what to tell her.

longway2go

I think you may be a little confused. Each month if you have a balance on a credit card you will be charged a minimum payment regardell of if you are in the interest free period or not. If the minimum payment is not made the credit card company will stop the special rate and revert back to standard charges. I think that when Barclays said a full payment needs to be paid they meant the full minimum payment not the full balance and that the £20 for next month is just the minimum payment and will therefore reduce the balance from £300 to £280. It may be worth claifying this with Barcalys.

Fiddlestick

curiousgeorge1 wrote: »

!But after them receiving that payment, they estimate the interest charge for next month to be about £20.

You have answered your own question - they ESTIMATE the interest.

Interest on credit cards is calculated daily but only applied on the statement date.

If she makes a large payment like that, the ACTUAL interest applied will be lower than the estimate.

Make sense?

izools

Barclaycard calculate interest based on the average balance throughout the month. They add up the balances on each day of the month, divide the result by the number of days in the month, and apply 1/12th of the APR to that figure.

NOT the statement balance

Fiddlestick

izools wrote: »

Barclaycard calculate interest based on the average balance throughout the month. They add up the balances on each day of the month, divide the result by the number of days in the month, and apply 1/12th of the APR to that figure.

Are you sure?

I've never heard of any card company calculating interest that way.

I've only ever heard it calculated on the daily balance and not some average balance.

izools

Fiddlestick wrote: »

Are you sure?

I've never heard of any card company calculating interest that way.

I've only ever heard it calculated on the daily balance and not some average balance.

Barclaycard do it differently to other companies.

curiousgeorge1

Thanks for those answers. An update on this matter.

My sister has been charged £16.94 interest (interest on your standard balance 1.019%) despite paying off the majority of her bill within a month of purchases, leaving only £389 balance.

Last statement balance: £1514
Purchses this month: £77.90
Payment this month: £1220
Current balance: £389

I am astounded that such a well known credit card company charge such high interest. I honestly can't work it out. Is it that there is absolutely no interest-free period on purchases?

What she tells me is that the call center told her that if she doesn't pay off her total balance in full, even if she is 1 pence short, they charge the full interest on the whole amount. So it seems pointless to pay it off at all, unless you can pay the full amount. This just seems like madness to me.

Surely she should change her credit card!

Jigga

With respect to the above posters, I don’t think that the OPs question was directly and clearly answered.

Your question and the answer applies to the majority of credit cards.

• You get an interest free period if you pay off the balance in full between the purchase date and the payment deadline date indicated on the monthly statement.

• If you only make a partial payment (even if it 1p less than the full balance) you are then charged interest for the full balance on a daily basis from the purchase date.

I learnt this lesson the hard way too back in the 1980s when I transposed the pence when writing a cheque to pay off my credit card in a branch. I wrote down 23p at the end rather than 32p and got charged interest on the full balance. Obviously I was not happy, a) because like you it seemed unfair and b) because the clerk at the bank didn’t bother to ask if my cheque was made out correctly (why would I deliberately pay 9p short??).

So, overall, no point in getting upset and moving to another card, the T&Cs around this will most likely be exactly the same. Take the lesson learnt, move on, but pay the outstanding £300 (+interest) as early as possible rather than waiting for the next statement as the interest is accruing on a daily basis.

Jigga

Hang on, I was responding to the original question.

Just looked at the 12.05 posting. It looks as if there was already a balance before the purchases this month, in which case there is no interest free period. Interest free only applies if you started from a fully paid balance on the last statement.

It may take a couple of months statements to get to that stage now due to the trailing daily interest that is accruing. My way round it is to calculate an estimate of the balance and the interest (to the payment day) and slightly overpay so that the card goes into credit.

izools

curiousgeorge1 wrote: »

Surely she should change her credit card!

In response to this, no. Not one credit card company in the world calculates interest based on the statement balance.

They do it either by charging 1/365th of the APR on the balance each day, or in the case of Barclaycard, 1/12th of the APR on the average daily balance for that billing period.

So no matter who you are with, if you spend 3/4 of the month with a £1,200 balance and 1/4 of the month with a £400 balance (for example) you are going to be paying nearly four times as much interest than if you held a £400 balance for the whole month.

That's how interest charging works. Everywhere

nomoneytoday

The only way for zero interest on a cc is to have 2 consecutive full payment amounts.
(except for opening offers and BTs)