Why is interest going up when balance is going down? Confused!

princess*daisy

Hi all,

I'm a little confused by what is happening with the interest on my Barclaycard, as it seems to be increasing even though my balance is reducing (I have not spent on the card since December and have paid minimum payment in Jan and £20 above minumum in Feb). Here are the key figures to illustrate:

February Statement
Previous balance £6371.07
Purchases £ 0.00
Interest & charges £ 81.09

Payments received £ 143.34 (Minimum)
Closing balance £ 6316.90


March Statement
Previous balance £6316.90
Purchases £ 0.00
Interest & charges £ 87.38
Payments received £ 162.13 (£20ish over minimum)
Closing balance £ 6242.15

Estimated Interest Next Month £ 94.09

But how can the estimated interest for next month be £94.09? This is more than this month's, yet my closing balance is lower. There have been no changes to my interest rates in this time. I am totally confused - can anybody shed some light on this?

Thanks in advance.

Simon7685

I could be entirely wrong but I believe it is because interest is being charged from the date of purchase. Therefore for example if you bought something in December you would pay interest in January for one month on that amount but in February that same purchase will incur you 2 months interest, so in March it will be 3 months interest and so on.

I'm sure someone will come along and explain this better than me but I hope this at least helps and hopefully doesn't confuse you more.

Growurown

Sorry not entirely sure. Minimum payments on my MBNA card changed every month as they charged by the day so a short month like February was less than March. If the interest hasn't changed is it possible they may have upped the minimum payment? The only way to know for sure is to phone them and ask the question.

Simon7685

So in effect if it takes you 24 months to pay off what you spent in December 2011, you will pay interest on top of interest on top of interest all the way down the line.

[Deleted User]

Two extra days in March. So more interest.

Ben8282

Simon7685 wrote: »

I could be entirely wrong but I believe it is because interest is being charged from the date of purchase. Therefore for example if you bought something in December you would pay interest in January for one month on that amount but in February that same purchase will incur you 2 months interest, so in March it will be 3 months interest and so on.

I'm sure someone will come along and explain this better than me but I hope this at least helps and hopefully doesn't confuse you more.

Sorry but this is confused. Interest from date of purchase doesn't mean quite what you are saying.

Ben8282

princess*daisy wrote: »

Hi all,

I'm a little confused by what is happening with the interest on my Barclaycard, as it seems to be increasing even though my balance is reducing (I have not spent on the card since December and have paid minimum payment in Jan and £20 above minumum in Feb). Here are the key figures to illustrate:

February Statement
Previous balance £6371.07
Purchases £ 0.00
Interest & charges £ 81.09

Payments received £ 143.34 (Minimum)
Closing balance £ 6316.90


March Statement
Previous balance £6316.90
Purchases £ 0.00
Interest & charges £ 87.38
Payments received £ 162.13 (£20ish over minimum)
Closing balance £ 6242.15

Estimated Interest Next Month £ 94.09

But how can the estimated interest for next month be £94.09? This is more than this month's, yet my closing balance is lower. There have been no changes to my interest rates in this time. I am totally confused - can anybody shed some light on this?

Thanks in advance.

I think that this may be connected with the interest on new purchases. Interest on new purchases may not be applied on the statement on which they appear in case you pay the statement in full and therefore qualify for them to be interest free. This interest is then debited the following month, along with the interest for that month, resulting in two months worth of interest being debited on those purchases for that month. In the third month though, you will only pay normal interest on those purchases.

Simple illustrative example
Assume statement date is 1st day of the month and interest rate is 1% per month

opening balance: nil
01 Jan purchase £1000.00

Statement 01 Feb will be issued of £1000.00 with no interest charged
28 Feb payment £100.00
01 Mar interest £20.00

Statement 01 Mar will be issued for £920 representing the balance plus interest as previous statement not paid in full .... interest will be calculated on the £1000.00 from date of purchase and will therefore be £20. (Period 01Jan - 28Feb @ 1% per month).
31 Mar payment £100.00
01 Apr interest £9.20

Interest is now being charged normally on this balance. However, had there been new purchases, the same thing would happen again with the part of the balance representing new purchases.

If you cease to use the card for new transactions, the interest will settle down.

In reality, interest is calculated on a daily and not a monthly basis and will therefore vary according to the number of days in the statement period which can vary according to the number of days in the month, the date and amount of your payment and the exact date on which the statement is produced. Also, the estimated interest for next month is only that; an estimate and may not be accurate. It has not yet been charged and may well vary.

chattychappy

When the OP makes payment is a factor too - as that's when interest will start running on a lower balance.

And, as Ben pointed out above, the estimate is just an estimate. It probably assumes only the minimum is paid and is paid on the due by date. Paying more and/or paying earlier will result in less interest.

princess*daisy

Thanks for all the helpful replies, cleared a few things up

molerat

If you are paying interest you are better to pay as soon as the statement lands on the doormat rather than wait till due date. Interest will be charged on that amount you intend to pay off from statement date until it is paid.

Joe_Bloggs

You can access Barclaycard online and find out your statement balance before it is even posted.

If the princess*daisy just makes the minimum payments then they will be making them for the next 33 years. See :-
http://www.moneysavingexpert.com/cards/minimum-repayments-credit-card#results

J_B.