Interest free and interest?

rara879

Hi,
Can somebody please explain something to me that my dad just told me but that doesnt seem to make sense?!

My mum took out a credit card and used it to pay for flights to South Africa for me and herself. The credit card had an interest free period of say 12 months (example, I'm not sure of exact). The idea was that I would pay my mum back the £750 before the interest free period finished.
Financial circumstances meant that it is now nearing the end of the interest free period and I still have a bit left to pay.

My dad says that the interest free period ends on 24th October and my payday is on 26th October, so I just mentioned that to him and he said well you dont have to pay it by then but then you will have to pay the interest. My reply was that surely the interest on £150 for 2 days wont be a lot (I think the rate is around 12%) and he said that it will be charged as if the balance was £150 for the whole month.

I dont really understand how the whole interest thing works and my dad wasnt explaining it very well, could someone please try and explain it to me in simple terms?

[Deleted User]

Interest is charged daily. So whatever amount is outstanding, for however may days it's outstanding for, is what you'll be charged interest on.

Just pay it as soon as you can.

chattychappy

There's truth in what you both say.

Interest is calculated daily at the prevailing rate. Generally to avoid interest you need to pay off the balance in full by the due date. If you do this, then the interest that would have been charged is effectively "written off" and doesn't appear. If you fail to pay off the balance in full, then interest will run from the transaction date until payment is received and each statement will show the amount charged.

So in the normal case, miss the due by date by as little as two days by as little as 1p and you could be hit hard with interest going back to the transaction date.

However, in your mother's case, the prevailing rate is 0% until 24th October. So whilst interest will be calculated daily, it will be calculated and applied at 0% until the 24th. You get only 2 days at the standard rate - about 5p per day on £150 at APR 12%.

If she fails to pay the minimum by the due date, she will probably lose the deal (as well as incur late payment fees). I saw one set of T+Cs saying that the deal would be lost effective from the previous statement date. In this case she could be up for 3 or 4 weeks interest as well as a penalty of £12.

So:
1) double check the deal really does run out on the 24th
2) make sure she pays at least the minimum shown on the statement date by the due date
3) don't worry about the interest on the amount that runs over the 24th if it is only for a couple of days. It will be peanuts.