0% on purchases...or not

keylimepie123

I was really pleased when I managed to organise a balance transfer a couple of months ago. I cut up my old card and began organising my payments in the hope of getting it cleared by the end of my 18 month interest free period. The credit card also came with a six month interest free period on purchases.

Because I had cut up said previous card, I used my new card to pay for three items including a flight, so that I had the security of having bought it on a credit card. I paid off the purchases very soon after making them.

Because it had been made clear to me when taking out the card that banks are now being all responsible (!) and paying off highest accruing interest items first (cash withdraws etc) I assumed that the cash I paid in would go onto my purchases as they had the shortest interest free period so ultimately would accrue highest rate of interest once the six month period ended. So I was basically using it as one would any other credit card when avoiding interest (purchase, pay off before end of month etc).

Anyhow it turns out they have been splitting my payments between the balance transfer sum and the purchases so I have not in-fact paid of the purchases. Meaning I will start paying interest of them when the six month interest free period ends in a couple of months. I called up and the bank confirmed this, and confirmed also that it's basically impossible to pay off your purchases in the six months without clearing the entire balance of the account.

If I had known this I would have saved the money for the purchases and paid it all in January and avoided paying any interest, but as it stands I will hit January with several hundred pounds liable to their high interest rates.

Sorry for the looong explanation! Thanks for reading it. I wanted to share my story so that no one else makes the same mistake as me (I should've kept the old credit card, made the purchases on there and paid them off straight away and no involved this new card at all) and also ask is there anyone I can complain to in the hope they may do anything?

I feel it should've been made clear to me that it's not actually possible to clear the purchases before the interest charging period begins and that by telling me the areas which will accrue most interest are paid off first implied that the purchases would be. It’s just so frustrating that if I had saved the money for the six months then paid it I would have been better off than paying it straight after purchases!

:mad:

pqrdef

The USA got the new rules before we did, in a slightly different form. There was a lot of argy-bargy over a period of years. We can only conclude that the exact implications of the new rules were perfectly well understood and the loopholes were deliberate.

shaymenRup

Simple rule is - don't spend and BT on the SAME card.

chattychappy

Payments are applied to the highest rate balance first. So if you have a 0% BT deal and make purchases, payments will be applied to the purchases first.

I don't see the problem. Yes you will have interest on the purchases, but only for a short time. It is clear that to avoid purchase interest you must clear the balance in full - which you are not doing if you are running a promotional balance.

thenudeone

The payment hierarchy rules mean that the highest current rate balance is paid off first.

But if you have several different balances at the same current rate (eg 0%), the card company can choose which one to pay off first. They are under no obligation to pay off the offer which ends soonest or which offer will revert to the highest standard rate (in fact these may be different).

The only way to stop being caught is to keep careful track of the separate components of the overall balance and then, the day AFTER the earliest 0% offer ends, pay the remaining balance of that offer off in full. You may have to pay interest for 1 day on the purchases.

Backbiter

thenudeone wrote: »

The payment hierarchy rules mean that the highest current rate balance is paid off first.

But if you have several different balances at the same current rate (eg 0%), the card company can choose which one to pay off first. They are under no obligation to pay off the offer which ends soonest or which offer will revert to the highest standard rate (in fact these may be different).

The only way to stop being caught is to keep careful track of the separate components of the overall balance and then, the day AFTER the earliest 0% offer ends, pay the remaining balance of that offer off in full. You may have to pay interest for 1 day on the purchases.

Oh how I wish I'd read this post before. I do keep careful track of all the separate components and the dates on which the 0% deal ends. In my case I had a £2.5k balance transfer running till July, and a £3.8k purchase (a holiday) on 0% till April 3rd.
I cleared the £3.8k purchases on 31st March to avoid any interest charges, leaving me another 3 months to clear the £2.5k BT.
I have just received my statement showing I've incurred £31 in interest for the past month and my 0% interest deal until July has ended.
Clearly an error, I thought, so I rang MBNA to point this out. I was fully aware that the change in 'payment hierarchy' was meant to be in the customer's favour, with payments supposed to pay off balances with the highest interest rate first. Clearly this has not happened in my case, as it has gone to clear a balance with a monthly rate of 1.59% rather than one with a rate of zero %.
The nudeone's post makes it clear that they have NOT applied the payment hierarchy in the customer's favour. My mistake was to pay my balance off on time. Had I delayed by a day or two I'd now be significantly better off and my payment would have gone to the interest-bearing component of balance, not the 0% component. I won't be able to clear the £2.5k till July, so I'll run up over £100 in interest charges I hadn't expected.
I hope this will help others who like me had a naive grasp of the 'payment hierarchy'.
An expensive lesson learned.

I googled this and found not all card companies do this:

Nationwide and Barclaycard pay [FONT=&quot] off the shortest 0% deal first. (This would have helped me)

[/FONT]Co-op and HSBC pay off the oldest debt first. (This would NOT have helped me!)

LloydsHBOS [FONT=&quot]pay off the purchase deal first. (This would have helped me)

MBNA/ Virgin etc [/FONT][FONT=&quot]pay off the 0% deal with the highest 'go-to' rate, as in my case, as my BT rate was fractionally higher than my purchase rate.
[/FONT]

EDIT: Here's the quote from MBNA's website regarding allocation of payments :

if you have two or more promotional offer interest rates on your account at the same rate, e.g 0%, then your payment will go towards paying off the promotional offer with the earliest start date. If the promotional offers both started on the same day, then the promotional offer that will become the highest standard interest rate when the promotional offer ends, will be paid off first.

To be fair, that spells it out very clearly!

jimsmillions

Transfer the balance to another 0% new card shortly before the current 0% period ends. Enough of them about so pay if off then in future dont spend what you have not got. That's my rule from now on.

thenudeone

jimsmillions wrote: »

Transfer the balance to another 0% new card shortly before the current 0% period ends.

That wouldn't solve the problem at all. A payment made into an account by balance transfer gets applied according to same rules as any other payment in, so if there are two or more balances at 0%, the same problem could still occur.

jimsmillions

thenudeone wrote: »

That wouldn't solve the problem at all. A payment made into an account by balance transfer gets applied according to same rules as any other payment in, so if there are two or more balances at 0%, the same problem could still occur.

I may not be the most financially astute person in the world but I must be seriously missing something here. Regardless of when and what the prior balance on a credit card is when you transfer it to a new card and new provider its just a balance transfer amount. So if the op transfers the balance again to a new card with a 0% balance transfer rate then the amount to pay will be 0%.

There are people that suggest that your credit card % should always be 0% as you just keep moving it to a new card. I dont have enough debt left now to find how long this is possible for, thank God.

thenudeone

jimsmillions wrote: »

I may not be the most financially astute person in the world but I must be seriously missing something here.

Yes. You are.

jimsmillions wrote: »

Regardless of when and what the prior balance on a credit card is when you transfer it to a new card and new provider its just a balance transfer amount. So if the op transfers the balance again to a new card with a 0% balance transfer rate then the amount to pay will be 0%.

You've missed the original point. If there are two balances at 0%, one of which expires next week and one of which next year; you would want any payments (or balance transfers) to be applied to the balance where the offer expires earliest, but the bank DOES NOT have to apply them in that way. They are allowed to use the payment against the longer offer, leaving the short offer balance to expire and then start to charge interest on it from next week, even though you THOUGHT that you'd paid it off.

chattychappy

thenudeone wrote: »

If there are two balances at 0%, one of which expires next week and one of which next year; you would want any payments (or balance transfers) to be applied to the balance where the offer expires earliest, but the bank DOES NOT have to apply them in that way. They are allowed to use the payment against the longer offer, leaving the short offer balance to expire and then start to charge interest on it from next week, even though you THOUGHT that you'd paid it off.

Best thing to do here is to do the transfer just after next week. Better to pay a few days' interest rather than risk an adverse application.