Should the minimum payment requested be more than the interest charged that month?

angel_whip

Hi all,

Just want to clarify something:

Should the minimum payment requested by my credit card company (Barclaycard) be MORE than the interest they are charging?

I paid the minimum on time, didn't spend anything and on my next statement noticed that the interest was higher than my payment, effectively meaning that I would just keep getting further into debt with them even by paying the amount they ask for on time.

I'm sure this isn't right, but keep getting stock responses on how interest is calculated from their customer care (!) team.

Thanks for your help.

HappyMJ

You can pay whatever you want. They should have a higher minimum payment but there is nothing stopping you from paying more to shorten the time taken to repay the credit card.

angel_whip

But, shouldn't the minimum payment cover at least the interest they are charging? So in months when I can't afford to pay more than that, I am still at least maintaining the amount, not going further into debt?

Rafter

The payment you made would have covered the minimum interest for the previous month (from the date you made the purchase to the statement date).

If it was the first month you had used the card, the purchase was potentially interest free at that point. If you had paid the balance in full you would have paid no interest at all.

However, if you make less than full payment the interest is backdated to the date you made the purchase.

Therefore the interest charge in the following month could well have been higher than the minimum payment you made.

You should find the 'minimum' payment on your current statement is higher than the interest charge though?

R.

tyllwyd

What is the interest rate on your card? I thought that Barclaycard minimum payments were 2.25% of the outstanding balance, so for the minimum payment to be less than the outstanding balance your interest rate would need to be somewhere around 27% or more?

Fruit_and_Nut_Case

angel_whip wrote: »

Should the minimum payment requested by my credit card company (Barclaycard) be MORE than the interest they are charging?

Morally, probably yes. Legally, I'm not sure. Time to dig out those T&Cs that you promised yourself to read one day.

angel_whip

Im sure that according to the Lending Code, the minimum payment should cover at least the interest plus 1% of the balance - so, my minimum payment of £55.86 is £5 less than the estimated interest of £61.05...

HappyMJ

angel_whip wrote: »

Im sure that according to the Lending Code, the minimum payment should cover at least the interest plus 1% of the balance - so, my minimum payment of £55.86 is £5 less than the estimated interest of £61.05...

The estimated interest is for next month if you make only the minimum repayment. How much interest was charged this month?

SnowTiger

angel_whip wrote: »

Should the minimum payment requested by my credit card company (Barclaycard) be MORE than the interest they are charging?

I paid the minimum on time, didn't spend anything and on my next statement noticed that the interest was higher than my payment, effectively meaning that I would just keep getting further into debt with them even by paying the amount they ask for on time.

As you say, that's the interest on your current statement. Your last payment would have covered the interest on your previous statement. Unless, that is, while diligently checking it, as we all do, you noticed the interest was higher than the minimum payment but chose to pay the minimum anyway.

Presumably, the point you're really trying to make is that, despite no charges to your account, the interest being charged on your current statement is higher than the interest charged on your previous one. I don't know why that would be. Perhaps they've upped your interest rate and the letter informing you of the increase has been lost in the post.

As for the answer to your question, http://www.adviceguide.org.uk/england/debt_e/debt_borrowing_money_e/debt_credit_cards_e/the_costs_and_charges_of_credit_cards.htm:

If you can’t pay the whole balance off, you will usually have to pay at least a minimum payment. Paying only the minimum amount each month increases the amount you have to pay overall. The minimum payment may be less than the interest that is being added which means you may never pay it off. Try to pay more than the minimum if you can, to pay off the balance quicker.

From April 2011 the minimum repayment on all new credit card accounts will be reset. If you only pay the minimum repayment you will also pay off one per cent of the outstanding balance as well as interest, fees and charges.

If I've understood things correctly, on accounts opened after April 2011 the minimum payment should cover interest, on accounts opened prior to that it may not.

JimmyTheWig

SnowTiger wrote: »

Presumably, the point you're really trying to make is that, despite no charges to your account, the interest being charged on your current statement is higher than the interest charged on your previous one. I don't know why that would be.

Because purchases were made during the prior month.

Interest charged in the 1st April statement is based on the average balance through March. As purchases were made throughout the month of March, the average outstanding balance may have been half the final balance on the 1st April statement.
Minimum payment requested on the statement dated 1st April will be more than the interest charged on that statement.
Interest charged in the 1st May statement is based on the average balance throughout April. No purchases were made in April and the balance was reduced (slightly) by the difference between the payment and the interest. But as this was only a slight reduction the average balance in April may still have been twice the average balance in March. So interest on 1st May may be twice the interest on 1st April. Which may be higher than the minimum payment requested on 1st April.
But minimum repayment requested on 1st May should be more than interest added on 1st May.

angel_whip

My interest the previous month was £60.52 so neither figure is less than the minimum payment. I noticed as I track my balances, and it went up, not down this month.

I made no new purchases and had no charges (other than interest) on my account.

As far as I'm aware (and I've checked back through a lot of previous statements) this has not happened before.

Essentially, what I want to know is whether this is something I should formally complain about. The account was opened the end of last year, so would fall into the April 2011 timeframe.

Thanks for all your help!