Interest on cash advances

archer7

Hi guys,

I've got my first credit card, and I'm still working out how they work, so I'd like some advice.

I accidentally got out a cash advance last month (took the wrong card out of my wallet ). I knew it would be accruing interest daily so I paid the entire balance off before the month ended. I just got my statement which had the 14p cash advance interest I expected, but also 1p of purchase rate interest. Although it doesn't matter, I'd quite like to work out where the purchase interest came from just so I know exactly how this evil thing works.

My current theory is that they've charged interest on the interest. There were 17 days between paying it off and my statement arriving, meaning there was a "hidden" outstanding interest balance earning purchase interest, because only purchases are interest-free for the first month.

Does that sound vaguely right?

Foxy-Stoat_3

How it used to work, you buy something from a shop at say £100, the Credit Card Company charges you interest at a set rate after a set time period usally 30 days. You withdrawn out £100 cash from the hole in the wall, the CCC charges you a cash advance fee and interest on the day or day after you draw the money.

This is the good bit for the CCC, if you pay a small amount say £25 a month off then this is taken off the balance of the spending and not the cash advance.

The OFT recently ruled that the balance that attracts the higher amount of interest should be paid off before the lower rate balance.

So if you have drawn cash out and spent in a shop, you will get 2 figures of initerest on your statement.

Hope this helps.

noh

Which card was it?
Some CC providers charge a handling fee for cash withdrawals and some treat that fee as a purchase.
Therefore the 1p maybe interest on the handling fee.

archer7

noh wrote: »

Which card was it?
Some CC providers charge a handling fee for cash withdrawals and some treat that fee as a purchase.
Therefore the 1p maybe interest on the handling fee.

It's the NatWest student credit card, and you're right about there being a cash advance fee, it's £3. From my rough calculation, I'd expect it to be 2p interest for that, but I wouldn't be surprised if you're right and I've messed it up. It sounds far more logical than my idea

chattychappy

OP: do you always clear the balance of your card in full? Even if you pay off a balance in full, if you didn't clear the previous statement in full also, you can get trailing interest (which can be very small).

archer7

Yeah, I paid off the previous statement in full.

chattychappy

archer7 wrote: »

Yeah, I paid off the previous statement in full.

And the previous one?

archer7

Yep, everything, this is only my second statement

I'm very careful to pay off the entire amount - I get paranoid and pay by debit card when the statement arrives, but even if I don't there's a Direct Debit to take the full amount.

MacWeeble

archer7 wrote: »

I accidentally got out a cash advance last month (took the wrong card out of my wallet ).

As an aside: I'm also paranoid about doing this, so I make sure that my credit card PIN is different to my debit card PIN, so if I use the wrong card it gets picked up as an incorrect PIN and I can switch to the right card. Yes, you have to remember another number, but it's not that hard in return for safety against unexpected fees!

That's my top tip!