Order of Payments

Glastoun

I made a cash advance transaction a few months ago, and immediately paid in an amount that I thought would cover that payment, so not to incur interest on it. However, I've been charged interest over the last three months, and according to my CC company it was because the entire balance hadn't been paid off. I have a few thousand on a 0% balance transfer and 0% purchases deal. I would have thought that any payment I made would have paid off the highest interest debt first, but the customer service folk seem to disagree.

Who is correct?

It's only three quid which they've refunded, but it's the principle of it.


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Hi, For April, May and June I have been charged £1 interest each month. I have a 0% balance transfer and also 0% purchases so can you tell me what this interest has been charged against? If this has been charged in error, please refund the £3 to my account.Thanks,
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Thank you for your message about your interest charges. As a courtesy I have refunded the £3 interest charges for you. I confirm the reason for the charges is to do with the transactions you made on 9 March and 10 March which are classed as cash advances and subsequently interest is charged. This is charged until your full balance is repaid, as I have now refunded the interest there will be no further charges. I hope this is now resolved for you. Kind regards
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Thank you. Your website says 'Any payment to your credit card balance will be used towards paying off any balances that are being charged at higher rates first.' So those cash advances should have been cleared a few months ago, and never had interest charged for three months in a row. Can you confirm that this was a mistake on your part?
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Thank you for contacting us. I appreciate your comments and the allocation of your payments has been correct. To clarify, as you have not paid the full statement balance each month interest will continue to be charged until that point.
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NickX

Cash Advances do incur interest from the actual date of the transaction.

If you cleared the cash advance on the next statement, there then may be some residual interest to pay on the following statement (i.e. interest on the cash advance from the previous statement date to the date the payment was actually made).

So I would expect interest on 2 statements, but not 3.

CLAPTON

without knowing the numbers it's impossible to say

depends upon how much the interest and fees were and how much you actually paid and when

zagfles

The problem is almost certainly that credit cards will allocate payments to items on a statement before they allocate them to items not yet on a statement. Check the T&Cs carefully, they'll probably say this somewhere. This trumps the "highest interest first" rule.

They have to work this way, when you think about it. Otherwise, say your min payment on your last statement was £100, and you made a £100 cash advance after your statement date but before your payment date. You then pay £100. What does it count towards? If the cash advance, then you've not paid the min payment for that month!

fozmcfc

It is difficult to explain, but they are correct. Paying the full amount off part of the card is not enough to stop interest, you need to pay everything off to avoid interest, the purchases and balance transfer as well.

The cash advance makes it even more complicated.

Forget the cash advance for a min. Imagine if you had 0% on a balance transfer but not purchases. It doesn't matter if those purchases are paid off in full on the next statement, the whole statement balance isn't being paid off, therefore interest will be added on the next statement.

Even with the newish way card balances are paid off first, it is still not advisable to use the same card for balance transfers and purchases unless the 0% period is the same for both.

In this case the 0% period is possibly the same for balance transfers/purchases, but the cash advance will mean that interest is added, 1/because cash advances immediately attract a fee and interest and 2/ because the whole card balance isn't being paid off in full.

Glastoun

Okay, I'll put the figures down, because I'm confused about the 'you haven't paid off the entire balance' bit.

12th March: made two £10 cash transactions, which were unavoidable, and which attracted two £3 charges, which is fine and I was expecting.

24th March: Paid minimum payment of £26.03 (presumably this is for statement/transactions made in February)

5th April: charged £1 interest, presumably for the two cash transactions, which is fair enough, although it looks like a rounded-up figure to me.

25th April: paid minimum payment of £35.38 which should cover the two £10 charges and any interest incurred since they were made.

7th May: charged £1 interest.

25th May: paid minimum payment of £41.20.

6th June: charged £1 interest.

And by the CC company's explanation, I would have been paying that £1 a month until I cleared the entire balance, whereas I'd have thought that my payments would have cleared the interest-bearing debt leaving only the 0% balances left. I thought that was the point of the rules regarding order of payments that came in a few years ago.

This may seem petty (and to be honest it looks like they've refunded me more than they needed to, so kerching for that) but I could have made the same transactions with a few zeroes on the end, so the whole 'you pay interest until you clear the balance' thing would have been a nasty surprise.

CLAPTON

Glastoun wrote: »

Okay, I'll put the figures down, because I'm confused about the 'you haven't paid off the entire balance' bit.




statement date
statement balance
interest charged
minimum payment




12th March: made two £10 cash transactions, which were unavoidable, and which attracted two £3 charges, which is fine and I was expecting.

24th March: Paid minimum payment of £26.03 (presumably this is for statement/transactions made in February)



statement date
statement balance
minimum payment
interest charged




5th April: charged £1 interest, presumably for the two cash transactions, which is fair enough, although it looks like a rounded-up figure to me.




25th April: paid minimum payment of £35.38 which should cover the two £10 charges and any interest incurred since they were made.



statement date
statement balance
minimum payment
interest charged





7th May: charged £1 interest.

25th May: paid minimum payment of £41.20.



statement date
statement balance
minimum payment
interest charged





6th June: charged £1 interest.

And by the CC company's explanation, I would have been paying that £1 a month until I cleared the entire balance, whereas I'd have thought that my payments would have cleared the interest-bearing debt leaving only the 0% balances left. I thought that was the point of the rules regarding order of payments that came in a few years ago.

This may seem petty (and to be honest it looks like they've refunded me more than they needed to, so kerching for that) but I could have made the same transactions with a few zeroes on the end, so the whole 'you pay interest until you clear the balance' thing would have been a nasty surprise.

see above ........

zagfles

Do they have a minimum interest charge of £1 in the T&Cs? If so this could go on forever! As soon as the £1 interest is charged it probably itself starts attracting interest (they usually say interest is treated the same as the item on which the interest is charged, ie interest at the cash advance rate would be charged on the £1 interest itself).

Normally £1 would only result in 1-2p of interest, but if they round it up to £1 it will go on forever! The 1-2p becomes £1 every time! The only way out of it would be to clear the balance plus a bit extra so even after the £1 is charged you're not in debt.

Which CC is it?

Glastoun

zagfles wrote: »

Do they have a minimum interest charge of £1 in the T&Cs? If so this could go on forever! As soon as the £1 interest is charged it probably itself starts attracting interest (they usually say interest is treated the same as the item on which the interest is charged, ie interest at the cash advance rate would be charged on the £1 interest itself).

Normally £1 would only result in 1-2p of interest, but if they round it up to £1 it will go on forever! The 1-2p becomes £1 every time! The only way out of it would be to clear the balance plus a bit extra so even after the £1 is charged you're not in debt.

Which CC is it?

It's AA/MBNA, and it looks like they do have a minimum interest charge - and not only that, according to this thread, even £0 interest is rounded up to £1!

forums.moneysavingexpert.com/showthread.php?t=3299554

But AA have moved the pennies of interest to the 0% rate so that should solve the problem going forward. Makes me wary of juggling funds around in accounts in the future though - was much easier when I had a series of porcelain pigs on the shelf, next to the Beano annuals.

Thanks,

NickX

It doesn't seem quite right to me - when you pay off an interest bearing balance, there is usually one more interest payment to make which is the residual interest between the last statement date and the date the balance was paid off. So, I would expect no more than 2 interest charges seeing as the first Minimum Payment covered the interest bearing cash advances.

And they do appear to have rounded up to a £1 Minimum Interest charges.

It may not seem like much to people here, but applying this practice across millions of customers will be a nice little earner for the Card Provider. I think you did the right thing complaining.

zagfles

Glastoun wrote: »

It's AA/MBNA, and it looks like they do have a minimum interest charge - and not only that, according to this thread, even £0 interest is rounded up to £1!

forums.moneysavingexpert.com/showthread.php?t=3299554

But AA have moved the pennies of interest to the 0% rate so that should solve the problem going forward. Makes me wary of juggling funds around in accounts in the future though - was much easier when I had a series of porcelain pigs on the shelf, next to the Beano annuals.

Thanks,

:rotfl:yes. Cash advances on a credit card, particularly small ones, are generally a complete rip-off, £9 for £20 of cash:eek:. You'd have probably got a better deal from a payday loan company! Suggest you get an overdraft facility on your bank account, usually if you don't use it you pay nothing and if you only go £20 overdrawn for a few days you'll pay a few pence in interest (and only once!).