Minimum Payment has shot up!!!

dtsazza

Sunshine_required wrote: »

I've just opened an account with MBNA and balance transfered £1700 with 0% interest for 18 months. Can anyone tell me roughly what my minimum payment will be?

It will be as described in the Terms and Conditions document that you agreed to when you opened the account and so clearly read beforehand.

Assuming it's a Platinum Visa, and thus operating under these T&Cs, then clause 1b explains the minimum payments quite clearly:

The minimum payment you must pay by the due date shown on your statement each month, including
any amount you owe for payment protection cover, will be an amount calculated as follows:

• if your statement balance is £25 or less, it will be the total amount of the balance shown;
• if your statement balance is more than £25, your minimum payment will be the greater amount of
  either: £25; or 1% of your statement balance before any default charges, card fee and interest (to
  which we'll then add an amount equal to the default charges, card fee and interest).

If the minimum payment amount would leave a balance remaining of £1.00 or less, then the minimum
payment shown on your statement will include that remaining amount to clear the total amount of the
balance shown on that statement. The minimum payment shown on your statement may also include other
amounts you owe to us. Please see paragraph 8a for further information about this. Your minimum payment
will not exceed the balance shown on your statement.

In this case, the 1% calculation works out at £17, and so the £25 minimum will be invoked as your minimum payment.


Then again you don't need to dig into the T&Cs to find this, as it's explained quite clearly in the Summary Box for the product. This might sound snarky, but I find it surprising that you (apparently) didn't even look at this before signing up. What if their minimum payment was £200 a month, or £1,500? That'd be a perfectly legal thing for them to do, and you'd agree to it and then be very surprised when the first direct debit was taken. (And doubtless some of the customers would claim "scam!" when it's what they agreed to...)

I don't mean to come across as harsh, but I think this is an essential element of MoneySaving. Find out the relevant details such as minimum payment before you sign up, so you know exactly what you're getting and can compare deals accurately.

antrobus

I found a good explanation of this minimum payment malarkey on this site called 'Money Saving Expert' and here's the link;

http://www.moneysavingexpert.com/cards/minimum-repayments-credit-card

It even has a helpful little 'run-down of what each company is doing'.

P.S. The 'Money Saving Expert' website seems to have a lot of useful information about this sort of thing.

thenudeone

chattychappy wrote: »

They may well have written that, but I think they are wrong to say that.

Agreed. Anyone can always pay more than the minimum.

chattychappy wrote: »

For irresponsible borrowers, yep - they'll pay off more. But this will free up more limit so they max out again. MBNA can simply turnover their capital faster.

There's no helping some people.

chattychappy wrote: »

NO WAY did they do it thinking they would make LESS PROFIT!

Some borrowers will just max out again once the higher repayment has been credited. For those customers - the bank will make slightly less profit (because the balance on which interest is charged will be lower for at least a day or two until the card is maxed again)
Some borrowers will not use the newly created available credit. For those customers the overall interest charged will be considerably lower.
So for those customers being charged profitable interest rates, the bank will always be worse off after a higher repayment.

For those on a 0% deal - the bank will still charge zero interest for its life but will charge interest on a lower balance once the deal ends, if it's not cleared. Again - the bank will either be worse off or in the same position after a higher repayment. (although I accept that the bank might be able to get some return elsewhere on the money repaid earlier)

The same applies to life of balance offers.

Customers may feel worse off under the last two situations because they are having to repay more of the low or zero rate borrowing earlier; but overall the changes are most likely to reduce the banks' returns IMO.

I accept the argument that existing borrowers should have been given more notice (or even a perpetual deferment); but if not now, when?

chattychappy

thenudeone wrote: »

For those on a 0% deal - the bank will still charge zero interest for its life but will charge interest on a lower balance once the deal ends, if it's not cleared. Again - the bank will either be worse off or in the same position after a higher repayment.

I think most people pay off/transfer away at the end of the deal. For those that don't/can't, yep MBNA will be worse off.

thenudeone wrote: »

The same applies to life of balance offers.

For LOB, I think MBNA are always better off simply because they don't have to keep the capital tied up on the promo rate so long. I don't think they make much out of 4.9%/5.9%/6.9% etc (considering the risk). They make the profit out of the upfront fee and people messing up. But yes, if those kind of LOB rates offer MBNA a better return than they can get elsewhere then yes, they are worse off as people pay down faster.

thenudeone wrote: »

I accept the argument that existing borrowers should have been given more notice (or even a perpetual deferment); but if not now, when?

I think the fairest solution would have been to apply the change to new borrowings (ie new transactions only), or at least not apply the change to promotional balances for which a fee was paid.

Though it doesn't answer the principle, a staged approach would have softened the blow. Some have seen their minimums tripple, because of the "extra" 1% a month. 0.5% now, 1% a year later would have helped.

BUT anyway, looks like this argument has been lost. Personally I don't care about MBNA's profits/losses. The change has been slightly detrimental to me and can only be detrimental to people that manage their finances responsibly (since they could always have paid more in the past). MBNA has made a commercial decision, but presented it as helping people out and suggested it is the result of regulatory change. Nobody seems to have the stomach to challenge it, so looks like it will stay. I quite admire them really!

MrsRogers

I do find it funny that people get so worked up. Nobody is forcing anyone to have a credit card. If people dont like the way banks operate dont borrow the money. Save up for want you want and buy it when you can afford to. Simple!

chattychappy

MrsRogers wrote: »

I do find it funny that people get so worked up. Nobody is forcing anyone to have a credit card. If people dont like the way banks operate dont borrow the money. Save up for want you want and buy it when you can afford to. Simple!

OK... so where do you save? In a bank?

And what if the rules changed and you thought it unfair?

I'm sure you'd be hoping that regulation was there to save you.

Nah.. simple! If you don't like the way banks operate, don't save with them in the first place. Just buy stuff on credit.

MrsRogers

chattychappy wrote: »

OK... so where do you save? In a bank?

And what if the rules changed and you thought it unfair?

I'm sure you'd be hoping that regulation was there to save you.

Nah.. simple! If you don't like the way banks operate, don't save with them in the first place. Just buy stuff on credit.

To be fair comparing savings and credit cards like for like is a rediculous notion.

With credit cards you are borrowing someone else's money... they set the terms & you agree to them if you dont, dont borrow their money wait until you can afford the item.

If its YOUR money which would be the case with savings then you can do what you like with them. If they changed the regulations I would withdraw MY money and go elsewhere.

People seem to think they have a right to borrow money which is insane. Whoever owns the money is in control. I personally would rather be the one in control.

chattychappy

MrsRogers wrote: »

Whoever owns the money is in control. I personally would rather be the one in control.

I'm not suggesting people should live beyond their means and I certainly think one should be prudent when borrowing.

But I simply disagree with the above analysis. Sure, a current account up to the compensation scheme limit is probably fairly safe, but with inflation you are effectively losing money and certainly missing out on a return.

Many people thought they were being prudent buying pensions - remember Equitable Life, saving with mutuals (remember Lancashire + Yorkshire Friendly Society), or buying "safe" investment trusts/unit trusts which turned out not to be so safe.

MrsRogers wrote: »

With credit cards you are borrowing someone else's money... they set the terms & you agree to them if you dont, dont borrow their money wait until you can afford the item.

T+Cs are set whether you are a borrower or lender. But agreements are highly regulated and terms cannot be changed willy-nilly. Eg for most saving/banking issues you are (supposedly) protected by the FSA's "treating customers fairly" initiative. So, sure, you shouldn't enter into a deal if you don't like it. But the OP's issue was about varying T+Cs after you've signed up - and that is constrained by law.

Whether you are a borrower or a saver, is irrelevant IMHO. The real issue is whether you are a retailer consumer of financial services or an institution. Regulation attempts to balance the "control".