Not making full payment

Karloh

Hi,

Just after a bit of advice is possible.

Currently have a Natwest Mastercard which has been stretched a little this month and currently owed to it is around £400. The minimum payment is around £9. I cant afford to pay the full whack by the due date but would be more than happy to pay in excess of £300 then clear the rest a couple of days later once i've been paid. Up until now all my payments have been full and well in advance, i'm just wondering what impact a slip up month like this would have on me?

Thanks

chattychappy

By the standards of this board, a "slip up" usually means forgetting to pay at all!

Probably no impact on credit rating.. (perhaps even make you look more profitable..)

But you will get interest - and it will run from the date of each transaction on that statement until eventually paid off. Ie not the statement date or the payment due date. Interest stops when each transaction has been paid off in full (though may appear on a later statement).

So - on that basis, pay as much as you can as soon as you can. If you can afford the £300 now, then pay it now. You can make further payments as soon as you get the cash in.

The formula is quite cruel in its perceived impact. If the balance is £400 and you pay £399, you will still get interest on the £400 worth of transactions, perhaps for a few weeks.

For this reason, it can be worth raising the cash (even, bizarrely, doing a cash advance on the same card!) just to meet the shortfall. You have to "do the maths" to work out whether it is worth it. But the nearer you are to paying the full balance, the more likely this is to be worthwhile.

OffRoadOnly

Karloh wrote: »

Hi,

Just after a bit of advice is possible.

Currently have a Natwest Mastercard which has been stretched a little this month and currently owed to it is around £400. The minimum payment is around £9. I cant afford to pay the full whack by the due date but would be more than happy to pay in excess of £300 then clear the rest a couple of days later once i've been paid. Up until now all my payments have been full and well in advance, i'm just wondering what impact a slip up month like this would have on me?

Thanks

I always thought making the minimum payments would mean you pay more interest to the CC company meaning your of value to them as opposed to someone who pay full each time missing out interest.

Karloh

chattychappy wrote: »

By the standards of this board, a "slip up" usually means forgetting to pay at all!

Probably no impact on credit rating.. (perhaps even make you look more profitable..)

But you will get interest - and it will run from the date of each transaction on that statement until eventually paid off. Ie not the statement date or the payment due date. Interest stops when each transaction has been paid off in full (though may appear on a later statement).

So - on that basis, pay as much as you can as soon as you can. If you can afford the £300 now, then pay it now. You can make further payments as soon as you get the cash in.

The formula is quite cruel in its perceived impact. If the balance is £400 and you pay £399, you will still get interest on the £400 worth of transactions, perhaps for a few weeks.

For this reason, it can be worth raising the cash (even, bizarrely, doing a cash advance on the same card!) just to meet the shortfall. You have to "do the maths" to work out whether it is worth it. But the nearer you are to paying the full balance, the more likely this is to be worthwhile.

So even if i pay say £300 by the 14th june due date and pay the excess on june 17th i risk heavy interest charges?

How does a cash advance work?

chattychappy

Karloh wrote: »

So even if i pay say £300 by the 14th june due date and pay the excess on june 17th i risk heavy interest charges?

How does a cash advance work?

Let's say your monthly interest rate is 2%, or 27% APR
And you get a monthly statement and 3 weeks to pay...
And the £400 spend was spread evenly through the month...
And you pay £300 on the due date, and £100 a week later...

Your interest will average out at £300 for 5 weeks and £100 for 6 weeks. That is about £9.70.

So the question becomes - could you borrow £100 for a few days at a cost of less than £9.70?

Typically cash advances attract a fee of 3%, perhaps with a minimum of £5, with interest running from the day of withdrawal. Usually you can get cash out at an ATM. So £100 for 2 weeks (assume same interest rate) would cost £5 fee + £1 interest. Total = £6.

Even £6 is rather expensive.. if you have an overdraft facility, that could work out a lot cheaper.

There are a number of assumptions in there - but you get the gist.

izools

Bottom line is it won't have any form of negative effect on your standing with the bank or your credit file whatsoever.

In fact, it could have a positive effect, as banks don't like customers who never make them money.

Your interest is likely to be well under £10. More like £5 given you'll be on a prime interest rate.

[Deleted User]

OffRoadOnly wrote: »

I always thought making the minimum payments would mean you pay more interest to the CC company meaning your of value to them as opposed to someone who pay full each time missing out interest.

A common misconception. People who only make minimum payments have a nasty habit of going splat in a spectacular fashion, which means the bank gets very little back from what they've lent.

chattychappy

Deleted_User wrote: »

A common misconception. People who only make minimum payments have a nasty habit of going splat in a spectacular fashion, which means the bank gets very little back from what they've lent.

Agreed, and I suppose that's why it's marked by CRAs when you only pay the minimum. It's a risk indicator.

For this reason, if people can only afford the minimum in a particular month, I would still say try and pay at least a quid more. That's enough to avoid the marker.