Completely confused over interest!

jde-tv

Hi, I need some help.

I get my credit card statements on the 8th of each month, I then have until the 28th of each month to pay it off. I get paid on the 26th and always send payment on the same day.

on the 8th of January my statement was £508, I only paid off £400... knowing I would have to pay interest on the £108. I looked into it and the card in question (tesco) has an interest rate of around 18% annually. So as far as I was aware I would be charged 18% off £108 if I were to not pay off the debt for a year, which would work out at £19.44... I thought this would then be divided by 12, so I would be paying about £1.62 in interest per month. I have just received my statement for February 8th and I've been charged £18?

Im guessing I have just completely misunderstood how credit card interest works. Sorry if none of this makes sense!

SkintFlynn

Is that £18 interest, or £18 minimum payment?

jde-tv

SkintFlynn wrote: »

Is that £18 interest, or £18 minimum payment?

It is £18 interest that has been added to my February statement.

CLAPTON

jde-tv wrote: »

Hi, I need some help.

I get my credit card statements on the 8th of each month, I then have until the 28th of each month to pay it off. I get paid on the 26th and always send payment on the same day.

on the 8th of January my statement was £508, I only paid off £400... knowing I would have to pay interest on the £108. I looked into it and the card in question (tesco) has an interest rate of around 18% annually. So as far as I was aware I would be charged 18% off £108 if I were to not pay off the debt for a year, which would work out at £19.44... I thought this would then be divided by 12, so I would be paying about £1.62 in interest per month. I have just received my statement for February 8th and I've been charged £18?

Im guessing I have just completely misunderstood how credit card interest works. Sorry if none of this makes sense!

you need to read the T&Cs but ALL cards work the same:

if you don't pay IN FULL (which you didn't) then you pay interest on your entire balance until paid off

the interest free period only applies if your pay IN FULL

so your Feb statement will show : interest on the 400 from the date you spent it to the date you paid it off (i.e. to say 26/27 th jan)
and the interest on 108 from the date spent until the next statement date (8th Feb)

and your March statement will show interest on the 108 from the Feb statement date to the actual date you pay it off in full (often called trailing interest).

so in summary : no interest free period unless your pay IN FULL

and once you occur interest, you will need to pay in FUll for TWO consecutive months before all interest stops.

SkintFlynn

Interest is calculated daily.

If you only paid the £400 on the 26th, that means you were being charged interest on the £508 for most of the month. That would still only be about £8 interest at the most though.

What's your statement amount for February?

jde-tv

SkintFlynn wrote: »

Interest is calculated daily.

If you only paid the £400 on the 26th, that means you were being charged interest on the £508 for most of the month. That would still only be about £8 interest at the most though.

What's your statement amount for February?

Thanks for the replies

my statement for February is £884.63, I spent quite a bit more this month (but was also planning on paying off more than last month) so I dread to think what the interest will be!

SkintFlynn

There's your answer.

You've been charged interest on the £108 for the whole month, the £400 up to the 26th or so, and the extra £780 from whenever you spent it to now.

SkintFlynn

Also, dividing your annual interest by 12 isn't exact, but close enough for most purposes.

I don't have a Tesco credit card, but all the cards I do have show my estimated interest for the next month (assuming I don't spend any more) on my statement.

jde-tv

thanks for all the replies. I did not realise the interest went up per day, and that I would be charged more if I continued to spend on the card. Learnt my lesson

dresdendave

jde-tv wrote: »

thanks for all the replies. I did not realise the interest went up per day, and that I would be charged more if I continued to spend on the card. Learnt my lesson

Well done to the OP for accepting they misunderstood the way interest was calculated and have learnt for the future, rather than screaming abuse about how the evil bank has scammed them.