Paying Off a Cash Advance Balance

f.m_fernandez86

Hi all,

I have just been on the phone to my bank, which has left me very confused.

I currently have a 0% purchase offer and I am being charged interest because of a withdrawal I made 2 months ago. I thought that any amount paid above the minimum would be applied to the balance with the highest interest rate, which is my cash advance balance. However despite having paid 300% over the minimum required, I am still getting charged.

Essentially, I withdrew £80, so it makes little sense that after having paid over £300 (minimum is £100), there's still interest being incurred.

The person on the phone gave me the impression that this might still be charged till the balance is cleared in full. Is this actually true?

Thank you in advance!

[Deleted User]

No, that's not true.

Your payments (including the minimum) will go towards the highest interest bearing balance (as long as it has statemented, on most cards) but you'll be charged interest on it from the date of the transaction until it's cleared.

There may also be some trailing interest, depending on how soon you paid it after the statement was produced.

If you paid it before it statemented, then the payment will have gone towards the 0% balance instead.

f.m_fernandez86

Thank you so much...so can I genuinely pay it off like I pay off my credit card balance transfer or my purchases balance just by giving them a phone call? That's provided I get put through to someone who knows what they're doing!

[Deleted User]

It doesn't matter if you get someone who knows what they're doing or not.

The payments are allocated automatically according to the payment hierarchy.

Terry_Towelling

The way the mathematics works, your cash advance and any interest on it will compound constantly and, in theory, it could go on forever.

Let's say you get a statement with the cash and related interest and you pay off the combined amount 20 days later. During the 20 days between statement and payment, the cash amount (and its interest) racks up more interest. As said by others, this is called trailing interest.

So the next statement you get shows the extra interest from that 20 day period. You pay off that amount another 20 days later but, once again, that portion of your balance will have accrued yet more interest during that 20 day period.

The same thing could happen the following month with the interest getting ever smaller each time.

I've checked some credit card T&Cs but been unable to find anything that says cash interest stops being charged when it is below a certain amount (e.g. <£1). All I can find are terms which say interest-bearing balances will only stop accruing interest when you've cleared those interest-bearing balances (and their interest) for two successive statements.

Ben8282

The first £100 monthly minimum payment was probably received prior to the cash advance appearing on a statement and therefore was probably applied quite correctly to the balance of the previous statement which did not include the cash advance.
Interest would have been charged on the cash advance on the next statement. The minimum payment of £100 would have been applied to the interest charged, the cash advance and the associated fee (presumably £3). It being highly unlikely that the interest charged for a (part) month on £83 would have exceeded £17 and therefore, assuming that the minimum payment was in fact £100 it would be reasonable to assume that the cash advance and associated fee were now fully repaid and no further interest charged.
The next statement would have contained an amount of trailing interest on the cash advance which would have been repaid from the mimimum payment that month, payment 3.
You say that 3 payments have been made so we are now at this point.
Your next statement should not show any interest.

Credit card statements these days show a breakdown of the amount outstanding by transaction type. Check under cash and you will almost certainly find that the amount shown is now 0. If it is not, let us know.

f.m_fernandez86

Thank you everyone! It definitely is something I won't do again in the future. Just gives me a headache thinking about how complicated the whole thing is, even the bank advisor had to go twice to his superior and still it left me confused.

I am not sure about you but from experience (this post refers to my Post Office credit card), I have found other banks are much better at breaking down your credit card statements. My Barclays credit card statement makes much more sense.

f.m_fernandez86

By the way, my most up-to-date statement now says that next month's estimated interest will be £0.02. I think I can live with that!

Thanks again for all your help.

Terry_Towelling

Be interesting to see whether they actually charge that amount to you.