Interest on purchases on 0% balance transfer cards

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Hi,

If i make a purchase (before or after) doing a balance transfer onto the same credit card, and the card has a 0% rate on transfers, will the minimum payments go against the purchase or the balance transfer first?

Basically, i'm trying to understand if i will have to pay interest on the purchases until the balance transfer is paid off in full.

Comments

  • CLAPTON
    CLAPTON Posts: 41,865 Forumite
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    the payments go to the spending first but you may still pay interest depending upon the exact circumstances

    the easy rule is not to mix 0% BT with spending.. use two cards
  • Hominu
    Hominu Posts: 1,671 Forumite
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    With some cards you pay interest unless the balance is cleared in full, so if its a BT card that'll not happen and you'll pay interest on everything you buy with it.

    Best to use a different card for purchases, makes things a lot easier.
  • chattychappy
    chattychappy Posts: 7,302 Forumite
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    Generally you will pay interest from the date of purchase to when the payment is received. Payments will be applied to the purchase balance before the BT balance.

    A complication is that payments are typically applied to statemented balances before unstatemented transactions. If this is the case and you spend on a card with a BT balance, then it is best to make your monthly payment as soon as possible after the statement date.

    The golden rule about not mixing transactions is now nothing more than a silver plated rule of thumb. Whether you should do this depends on your circumstances - ie what other balances you might be carrying. In some circumstances it will save interest to spend on a card with a promotional balance - as it will maintain your promotional balance at a higher figure freeing cashflow to be applied to interest bearing balances elsewhere.
  • gglaze
    gglaze Posts: 265 Forumite
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    Back to the OP's original question, let's stress that point about *statemented* transactions. Please be aware, if you plan to have a BT and then do some spending, you should *NOT* go ahead and try to quickly make a payment to cover your spending, before those transactions show up on your next monthly statement - in that case, your payment would be applied towards your statemented balance first, which means you are just paying off some of your BT balance, while leaving more high-rate purchase balance to show up at the end of the month.

    If you must spend on your BT card, make sure to only make payments after transactions actually show up on the monthly statement - and then, try to make your payment as soon as possible after your statement is issued (check for it online, rather than waiting for it to get through to you in the post). You will not be able to avoid at least some interest in this case, but you can try to be smart minimise it.

    Also be aware that once you've got some purchases interest accrued on your statement, you will have revolving interest every month that will probably not entirely go away - but again you can try to be smart to minimise it to a few pence.
  • YorkshireBoy
    YorkshireBoy Posts: 31,541 Forumite
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    gglaze wrote: »
    Back to the OP's original question, let's stress that point about *statemented* transactions. Please be aware, if you plan to have a BT and then do some spending, you should *NOT* go ahead and try to quickly make a payment to cover your spending, before those transactions show up on your next monthly statement - in that case, your payment would be applied towards your statemented balance first
    Not always (hence chattychappy's "typically" comment above). MBNA, for example, don't distinguish between statemented and unstatemented transactions. So in this case, it would be advisable to make the payment ASAP.
    you can try to be smart to minimise it to a few pence.
    Some providers have a £1 minimum interest charge, so that's £12 a year down the pan!
  • chattychappy
    chattychappy Posts: 7,302 Forumite
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    gglaze wrote: »
    Also be aware that once you've got some purchases interest accrued on your statement, you will have revolving interest every month that will probably not entirely go away - but again you can try to be smart to minimise it to a few pence.

    If, say, you had £100 of purchases just after your statement date with a purchase rate of 2%/month, then the next statement would show interest of £2. Your purchase balance is now £102. If you pay this 2 weeks later, then the next statement would show interest of £1.02 (for two weeks' interest on £102). So your purchase balance is now £1.02. If you pay this 2 weeks later, then the interest is 1p (two weeks' interest on £1.02). The next month it would round to nothing. In total the "interest on interest" element has been 3p on an original transaction of £100 (0.03%).

    Exact calculations may differ - and as YB points out there might be a minimum charge/rounding up. But when I've done it (Santander Zero, Natwest, Post Office) then the effect has been as above. I have done it on MBNA, but only whilst running a LOB deal, so the minimum charge didn't come into it.
  • gglaze
    gglaze Posts: 265 Forumite
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    Maybe this is specific to Tesco CC, but in my experience with that particular card, it has taken longer to get it back to zero. It's only been a few pence here and there, so it was never worth the time to go investigate it - but for example, just looking at my most recent statements...

    (assume we had some BT on here at a lower rate to start with)
    Here are my purchase balances and interest (monthly interest rate 1.805% on purchases), apart from the other bt "special offer" balances:
    Mar 2012 : balance £19.14, interest £0.14
    Apr 2012 : balance £1.30, interest £0.03
    May 2012 : balance £1.30, interest £0.00
    Jun 2012 : balance £1.27, interest £0.00
    Jul 2012 : (purchase made for £26) => balance £27.66, interest £0.08
    Aug 2012 : balance £1.29, interest £0.02
    Sep 2012 : (purchase made for £40) => balance £1.27, interest £0 (?)
    Oct 2012 : balance £104.92, interest £1.25
    Nov 2012 : balance £2.52, interest £0.00 (?)
    Dec 2012 : balance £19.81, interest £0.24
    Jan 2013 : balance £2.78, interest £0.02
    Feb 2013 : balance £2.78, interest £0.00
    Mar 2013 : balance £2.78, interest £0.00

    My payments (always about £1 over min pmt, then rounded up) - have ranged from £33 and up - but always at least enough to cover whatever the stated purchases balance was on the statement the month before. In fact, we see some decrease in the BT balance every month, so that tells me I am actually fully paying off the purchases balance each month, and the new resulting balance is just from rolling interest.

    The part that really perplexes me is how we go from a month with £0.00 interest back to some interest, such as Nov-Dec 2012 - when as you can see above, no further purchase activity was going on. The only thing that has been happening quite a bit over this period is more BT promo transfers, and associated fees - but I always presume those aren't affecting the purchases balance and interest?

    And what does it mean when the interest goes to £0, while the "purchases balance" doesn't seem to have decreased? Such as the last 2 months? Well, in the end I seem to be back to zero interest, so I guess I won't complain - but who knows if I'll be back to some small interest again next month for some unexplained reason. I really can't make sense of it.

    Anwyay, like I said, it's very small amounts so I haven't bothered to really try to understand it properly.
  • skankingpigeon
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    thanks for the help everyone! i assume its the same for money transfers as well as balance transfers?
  • chattychappy
    chattychappy Posts: 7,302 Forumite
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    Must have taken a long time to write that out. It does look odd, I agree.
    gglaze wrote: »
    The only thing that has been happening quite a bit over this period is more BT promo transfers, and associated fees - but I always presume those aren't affecting the purchases balance and interest?

    Ahhhh dangerous presumption. CCs often charge standard interest on BT fees.
  • gglaze
    gglaze Posts: 265 Forumite
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    thanks for the help everyone! i assume its the same for money transfers as well as balance transfers?

    By "money transfers", I guess you mean transferring cash directly to your bank account, from your card? I.e. the so-called "super balance transfer"? If your card allows this at a special rate (and most cards don't from what I have observed), then yes, presumably that balance at a promotional interest rate plays by the same rules as any other balance at a promotional rate. In effect, promotional balance transfers, promotional purchases at reduced rate, promotional super balance transfers, etc - these are all just ways to get a balance on the card at a promotional rate (i.e. lower than your normal purchases rate, hopefully!).

    Once you've got a balance on your card at a promotional rate, then yes, it should generally be maintained on that card without any purchases or transactions at any other (normal) rates, if possible. But if that's not possible and you must mix rates by making some purchases on the same card, then be prepared to see some rollover effect, like what I've posted above with my tesco card.
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