Trying to work out how purchase interest is paid on a BT card

Kelxx

Hi I'm looking for some advice as I've read up on this but I'm still confused, doesn't take much

Suppose for example:

I had a 0% BT (29months) card (1.5% purchases) that I had transferred £2000 on to & then made a purchase in a shop of £500, would I pay the 1.5% on just the £500 or on £2500?

And then if I paid £100 per month after six months would I still continue to pay interest or would my balance return to 0% rate?

Hoping someone can explain it to me

jonesMUFCforever

Yes to all your questions BUT most on here will advise you to keep purchases off any balance transfer cards.

Kelxx

jonesMUFCforever wrote: »

Yes to all your questions BUT most on here will advise you to keep purchases off any balance transfer cards.

Thank you for your reply, MUFC, so to clarify

A) I would pay interest on the purchase only?

and

(B) Once the purchase was paid, I would return to my 0% rate for the remainder of the offer term?

I'm sorry if I sound a bit thick but I'm just trying to understand how they assign interest.

jonesMUFCforever

Yes but trailing interest would apply.
Much simpler to have 2 cards.

CLAPTON

basically, your payment pays off the monthly interest first then the items with the highest interest rate (in this case the purchase items)

but best to get another card to keep things simple

Kelxx

Thank you both

chattychappy

You would pay purchase interest on just the £500 for the first month, £400 for the second month and so on.

People often say it is better not to mix purchases onto a BT card. This is true if you can pay off the purchases within the "up to 56 days" period. But (as seems the case here) if you cannot, then it is better to put a purchase such as this onto your BT card.

The reason is that all your repayment monies can go towards your interest bearing balance (the purchase). Your BT amount is effectively "grandfathered" - ie the 0% balance is maintained at the same level whilst your non-0% balance is reduced. The "positive payment hierachy" is working for you.

If you put the purchase onto a separate card, then you will be paying purchase interest on that, whilst at the same time having to pay something off the 0% balance on the BT card. This is wasteful. As I say, if you are paying interest you want all your cashflow hitting that balance first.

The general rule is don't mix whilst you can pay off purchases in full each month. But if you do need to take extra credit then put those purchases onto a BT card. The most efficient way to do this is to make the purchases just before the statement date and pay just afterwards.

(Of course utlimately all this must be paid back, and some people might benefit from the pyschology of keeping the balances separated. Also I'm assuming that the purchase rate on your BT card is not significantly different from any other card you might hold.)

CLAPTON

chattychappy wrote: »

You would pay purchase interest on just the £500 for the first month, £400 for the second month and so on.

People often say it is better not to mix purchases onto a BT card. This is true if you can pay off the purchases within the "up to 56 days" period. But (as seems the case here) if you cannot, then it is better to put a purchase such as this onto your BT card.

The reason is that all your repayment monies can go towards your interest bearing balance (the purchase). Your BT amount is effectively "grandfathered" - ie the 0% balance is maintained at the same level whilst your non-0% balance is reduced. The "positive payment hierachy" is working for you.

If you put the purchase onto a separate card, then you will be paying purchase interest on that, whilst at the same time having to pay something off the 0% balance on the BT card. This is wasteful. As I say, if you are paying interest you want all your cashflow hitting that balance first.

The general rule is don't mix whilst you can pay off purchases in full each month. But if you do need to take extra credit then put those purchases onto a BT card. The most efficient way to do this is to make the purchases just before the statement date and pay just afterwards.

(Of course utlimately all this must be paid back, and some people might benefit from the pyschology of keeping the balances separated. Also I'm assuming that the purchase rate on your BT card is not significantly different from any other card you might hold.)

yes, very good points and it's always worth restating the circumstances where mixing BTs and purchases is cost effective.

but 'general rules' are there for people who don't know and understand the details; for people who don't know how to work out the fees and interest and who have probably never read the rules of their financial products.

so keeping 0% BTs on a separate card from purchases is a good rule of thumb although is not optimal in all circumstances but is unlikely to be a costly exercise either

Kelxx

Thank you guys, you've explained it really well.

Just to note, it was a hypothetical scenario as reading the blurb that comes along with these cards is written in a language called gobbledegook.

And although I've used credit cards in the past, I was with my husband then & he was a 'sign now, worry later' kind of guy, whereas I like no surprises

So thanks again for helping me get my head around it all