Beware MBNA's allocation of payments

J_B_5 · 8 June 2014 at 12:21PM

I recently transferred a balance to an MBNA credit card at 0% for 18 months. New purchases were at 0% for 3 months so I made some purchases using the card with the intention of repaying them before the interest free period of 3 months for purchases ended to avoid being charged interest. I have done this on a couple of other credit cards in the past and the repayments made were allocated to the purchases first, as once the interest free period for purchases ends they are the highest interest bearing balance. MBNA DO NOT do this. They consider the balance transfer to be the highest interest bearing debt as the interest rate is at a higher rate than purchases after the promotional 0% interest rate ends. I am now committed to paying interest every month on the purchases as all repayments are offset against the balance transfer amount first. Why are MBNA allowed to do this when it seems most other credit card companies don't?

jonesMUFCforever · 8 June 2014 at 12:57PM

The golden rule in my book is to never mix balance transfers and purchases.
There are plenty of other cards available to do both separately.

chattychappy · 8 June 2014 at 1:53PM

I think the direct answer is why shouldn't they be allowed to? Just because one CC does something, doesn't mean others will follow the same method. Hopefully other readers will benefit from your experience.

In fact I've always found MBNA really helpful - their statements show the amount of each type of balance remaining, so you can see how payments have been allocated.

Too late now, I know, but in future it would be best just to pay the minimums* when on 0%. Then send a larger payment the day after a promo balance has ended. That way you can be sure it will be allocated to the interest bearing balance (and if it isn't, you've got grounds to complain). One day's interest will be very small.

(Pay minimum + £1 to avoid a minimum payment marker with the CRAs.)

molerat · 8 June 2014 at 2:00PM

As always READ THE T&Cs. All is quite clearly stated.

4 Payment allocation
4.1 We will allocate your payment towards paying off amounts that are charged at higher interest rates before those that are charged at lower interest rates (including amounts added to your account after your statement date up to the date your payment is credited to your account).
4.2 If we charge interest at the same rate on different parts of your balance, we will allocate your payment as follows:
• if your account has a promotional rate and a standard rate which are the same, then we will first pay that part of the balance on which we charge interest at the promotional rate;
• if your account has two or more promotional rates which are the same:
• we will first pay off the part of the balance that has the earliest promotional rate start date;
• if the promotional rates have the same start date, we will then pay off the part which will be charged at the highest standard rate at the end of the promotional period.
• we will then apply your payment to balance transfers, cash advances, money transfers and then card purchases, in that order.

mjm3346 · 8 June 2014 at 2:14PM

As soon as you start paying interest on the purchases your payments should be applied to them ahead of the 0% BT, so it should only make a small difference if you pay it off at that point.

Thrugelmir · 8 June 2014 at 2:16PM

J_B wrote: »

Why are MBNA allowed to do this when it seems most other credit card companies don't?

As a business they can set their own terms of trade. Never assume.

J_B_5 · 8 June 2014 at 2:34PM

As a couple of you have suggested, I did pay off the total purchases balance just before the 3 month interest free period ended, but it was allocated to the balance transfer amount rather than the purchases balance. I thought that credit card companies had to allocate payments to any interest bearing balances first. MBNA say that it is the balance with the highest interest rate after the promotional period ends. So, as the balance transfer amount will be charged a higher rate of interest once the 0% period ends than the purchases, payments are allocated to the balance transfer amount.

For those of you who suggested reading the terms and conditions, it appears from the replies that other people have made the same assumption as I did and I just wanted to make people aware of this. As I mentioned in my initial post, a couple of other credit card companies I've used have allocated repayments to purchases before balance transfer amounts as they bear interest first. I thought that the legislation brought in a while back meant that credit card companies had to allocate payments to interest bearing balances before non-interest bearing balances.

Thank you for your replies and suggestions.

chattychappy · 8 June 2014 at 2:52PM

J_B wrote: »

As a couple of you have suggested, I did pay off the total purchases balance just before the 3 month interest free period ended, but it was allocated to the balance transfer amount rather than the purchases balance. I thought that credit card companies had to allocate payments to any interest bearing balances first.
...
I thought that the legislation brought in a while back meant that credit card companies had to allocate payments to interest bearing balances before non-interest bearing balances.

Thank you for your replies and suggestions.

Yes, but in your case both balances were still at 0% when you sent your payment, as you sent it BEFORE expiry of the 3 month offer. The balances weren't interest bearing.

Hence it is better to pay the day AFTER expiry.

The rules do say that payments must be applied to interest bearing balances first - but when balances are on the same rate, CCs are free to set their own rules.