Credit Card Interest charged on even though payment made!

ashgale

I had quite a big credit card bill at xmas, totalling £1200, of which £1000 was mine and £200 was my boyfriends. I couldn't afford to pay all of it off without receiving the money from him first, so I paid off my £1000 and left the other £200, thinking I would be charged interest on that. However, I have been charged interest on the entire amount, totallling £21 even though I had paid off most of it! I was better paying off the minimum and keeping the rest in the account till I could afford to pay off all of it. Has anyone ever heard of this before? Surely it's wrong to charge interest on the entire amount despite a payment being made? HELP!

[Deleted User]

No - it's absolutely correct. You borrowed £1200 for a month and have been charged interest on it. Next month you'll only be charged interest on the £200 (assuming no new spend). If you'd made min payment, you'd be charged on the £1200 again.

You only get 30 days free if you pay off in full every month.

Tixy

You will only have been charged interest on the £1000 from the date of the transaction(s) to the date of your payment. On the £200 you will be charged from the date of transaction(s) to the statement date. If you'd only paid the minimum the interest would have been more this month and more next month.

ashgale

But surely I'm "borrowing" money every month I put stuff on my credit card? Why is it only if I pay it off in full do they not charge interest?

[Deleted User]

It's just a standard offer they make. The reasoning being, a lot of people wouldn't use credit cards if they got charged interest, if they have the ability to use a debit card instead. Which means the card providers would lose out on merchant fees and economies of scale.

Tixy

Its just how (almost) all credit cards work. Up to 54 or 56 days interest free if you repay your balance in full each month. If you don't you are charged for the period you borrow for.

chattychappy

If this situation happens again, three things you can consider doing to reduce the interest "whammy"

1) if you plan ahead, switch the spending to a second card. So perhaps in this case, once you'd spent £900, put the other £300 somewhere else. Then you can still pay off the £900 in full. You would pay £100 off your card with £300 balance - so would only pay interest on £300, falling to £200.

2) It can be worth getting a cash advance for the short fall. Sure there are fees and a higher rate associated with that, and no "interest free" period. But it can still work out cheaper than the loss of your interest free period. Eg assume Cash rate: 2.2%/month + 1.5% fee. Purchase rate: 2%/month. 1 month @ £1200 purchases, + 2 weeks @ £200 = £26. 1 month £200 cash = £7.40. All depends on timing of transactions and rates of course.

3) Once you realise you're not paying the balance in fee, remember interest is worked out daily. So just pay as much as you can as soon as you can. Don't wait for "due by" dates, or restrict yourself to making just one payment a month. As soon as you get some cash in (eg salary) then pay down the balance.