Is MBNA charging me double interest each month?

fractaos

Hi, unless I am truly mistaken and my mathematics capability has dropped 100% overnight, MBNA is charging me the same interest twice each month.
I have an MBNA credit card where the minimum repayment is 1% of the balance + monthly interest. My May statement reads as follows (there has been no spending on the card for last 5 months):
Balance Previous statement 12800.09
01 May Direct debit min payment 283.61 CR (last month's 1% + interest => 126.42 + 157.19)
13 May Interest Charge 150.10
New Balance 12666.58
So basically I start off with a balance of 12800, pay the minimum 283 which leaves a balance of 12517(12800-283). Then 150 interest gets charged which puts my balance (debt) back up to 12667 (12517+150).
Now here is the crazy thing: The next month my minimum payment is 275.26 which breaks down as: 125.16 (1% of 12517 => last month's balance after minimum payment) + 150.10 Interest!!! Here is the statement:
Balance Previous statement 12666.58
30 May Direct debit min payment 275.26 CR (last month's 1% + interest => 125.16 + 150.10)
12 Jun Interest Charge 192.48 (This jumps because a 0% transfer just expired)
New Balance 12583.80
So again, I start off with 12666, pay off minimum 275, which leaves a balance of 12391 (12666-275) and 192 gets charged for interest, which increases my balance to 12583.
And the next month my minimum payment is 316.39 which breaks down as: 123.91 (1% of 12391 => last month's balance after minimum payment) + 192.48 interest !!!

So in a nutshell I pay 1% of balance + interest in my minimum monthly payment, the exact same interest amount that was added to my balance (i.e. increased my debt load) the month before. This pattern has been the same since January.
Am I missing something or is MBNA charging me interest twice? (I already talked to 2 of their staff and they are adamant that the statement payments and charges are correct).

Thanks for your help, this is driving me nuts!

Fractaos

eskbanker

I think you're getting confused between payments and repayments - the way I'd look at it is that each month you pay 1% off your balance and on top of that there is an interest charge that doesn't actually affect your balance at all rather than being added and subtracted in the way you seem to suggest.

So, if your balance is decreasing by 1% per month and you're paying interest roughly equal to a twelfth of your stated APR the figures sound right to me....

fractaos

Thanks for your response eskbanker,
correct, the "interest charge is roughly 1/12 of APR, but for the past 5 months I have been paying roughly 280 in minimum payments, whereas my balance has decreased by roughly 120 per month, is that normal?

wacko911

If your interest is about £160 a month then yes.

Nebulous2

Credit cards all now give prominent warnings about the length of time it takes to pay them off when making minimum payments.

0% expiring can hit people hard because then a lot of money goes to interest payments.

As Eskbanker says think of your payment as 1% to come off your balance and the rest to the creditcard company in interest.

You pay last month's interest with your payment and they then add the next month's interest due to your statement.

Your debt will then reduce by the 1% each month.

ERICS_MUM

The interest will always show twice on your statement. Once for when the CC company takes it off the account as the monthly charge and once when the direct debit is paid in to repay the interest charge. So, the interest is actually on and off, leaving your balance (if card isn't used) as the previous months balance less the 1% min balance payment. Basic double-entry book keeping although the 2 entries are days apart.

Sorry if not clear, it's difficult to explain. As an example:

Balance is -£100. Interest of £5 is taken, new balance is -£105. Direct debit of £6 is paid in. New balance on account is -£99.

[Deleted User]

fractaos wrote: »

Hi, unless I am truly mistaken and my mathematics capability has dropped 100% overnight, MBNA is charging me the same interest twice each month.

Well, at least you know which it is now!

MuffinTops

They're definitely correct.

On 13th of the month they tell you how much interest you'll be paying.
On 1st of the month they then take that money.

Based on you only paying 1% off of your total balance then £160 a month is going purely to them for interest (as they've stated in their statements telling you what your payment is made up of)

Now that your 0% transfer has expired your interest payment has gone up to £192.00 with a balance reduction still of just around £120.00

Credit card interest rates can be brutal. Are you able to transfer this to a 0% balance transfer card and maintain the payments you're currently making to really hit that debt?

SuperHan

Yes, if they didn't add it back on, then you would be paying the monthly interest charge but not actually incurring it. Just in case you didn't get it from the above examples:

You spend £100 on the card. Month 1 statement looks like this (with assumed 10% monthly interest):

£100 CR
-£1 (1% min payment)
-£10 (10% monthly interest payment added to min)
Balance:
£89 CR

So at this stage, you've paid £11 off, and incurred no interest at all as you now only owe £89. The bank then add on the £10 interest charge:

£89 CR
£10 (interest charge)
Balance:
£99 CR

Now, the balance is correctly your original balance of £100, less the minimum 1% £1 payment you have made.

Only the 1% is reducing the balance, the rest is an ongoing (and large!) monthly expense.