Interest Charges Calculation

Superhoopza

CliveOfIndia said:

Superhoopza said:

Their explanation is that they charge interest based on purchase balances, not statement balances. So if you pay off £2000 on your card and spend £2,500 in a month, they will charge you interest of £2500 in the month, not £500. Which sounds ridiculous does it not? I'm not aware of any other companies doing it this way? 

How it works is you make a purchase on the card.  This starts accruing interest on a daily basis.  When you get your statement, it shows all the purchases you've made, and in the background there is an amount of interest that needs to be paid - interest that each transaction has been accruing each day since it hit your account.

If you pay off the balance in full (or, in the case of Barclaycard, all of your purchases), then the accrued interest is waived.  If you pay anything less than the full amount, then all the accrued interest becomes payable - not just the interest on the portion that's left after you've made a partial payment.

This is quite standard, and is how every card works (in fact, BC is slightly better than most in that it separates out purchases from promotional offers).

I didn't clear my balance or my purchases (I still had a positive balance beyond just the transactions that month), yet seemed to not get charged interest one month but then got double (or in this case 4x) the interest the following month.

Superhoopza

CliveOfIndia said:

Superhoopza said:

Their explanation is that they charge interest based on purchase balances, not statement balances. So if you pay off £2000 on your card and spend £2,500 in a month, they will charge you interest of £2500 in the month, not £500. Which sounds ridiculous does it not? I'm not aware of any other companies doing it this way? 

If you pay off the balance in full (or, in the case of Barclaycard, all of your purchases), then the accrued interest is waived.  If you pay anything less than the full amount, then all the accrued interest becomes payable - not just the interest on the portion that's left after you've made a partial payment.

So by that reasoning, making partial payments each month would not reduce my interest at all until it is cleared in full?

Superhoopza

From speaking to them I got a 3 month interest waiver from them. I was assured no markers would be put on my account. There is no worry of this I presume? I'll still make over the minimum payments each month.

grumbler

Superhoopza said:

Their explanation is that they charge interest based on purchase balances, not statement balances. So if you pay off £2000 on your card and spend £2,500 in a month, they will charge you interest of £2500 in the month, not £500. Which sounds ridiculous does it not? I'm not aware of any other companies doing it this way? 

If the next balance is £2500 and you don't pay it in full then yes, the interest they charge will be on full £2500 (daily on each transaciton if more than one). Nothing ridiculous.

Superhoopza said:

eskbanker said:

Ultimately, card companies calculate interest on the balance owing each day, so it's impractical to look at the situation averaged over an entire month (or more) and validation needs to include daily calculations.

Essentially within the space of three days I lowered my balance by about £2k and then spent £2k again on it. Instead of a net impact of zero, they seem to have lowered my interest last month by the £2k payment and then whacked a big interest charge on this month for the £2k spent. Feels a very weird practice as they quote that interest is calculated on purchases within a month, not statement balances and movements.

Unless you pay the statement balance in full, lowering the balance for three days has very little effect on the total interest charged. Only if this £2K pay the last statement balance in full, this will make difference as the interest on the last statement purchases will be waived.

eskbanker

Superhoopza said:

eskbanker said:

Ultimately, card companies calculate interest on the balance owing each day, so it's impractical to look at the situation averaged over an entire month (or more) and validation needs to include daily calculations.

Essentially within the space of three days I lowered my balance by about £2k and then spent £2k again on it. Instead of a net impact of zero, they seem to have lowered my interest last month by the £2k payment and then whacked a big interest charge on this month for the £2k spent. Feels a very weird practice as they quote that interest is calculated on purchases within a month, not statement balances and movements.

Repaying and then spending £2K will have a net impact of zero on the balance, but not the interest.

The interest will have been accruing every day on the larger amount (including the £2K) up to the date on which you repaid £2K, then will be calculated on the reduced balance for each day up until you spent again, after which it would continue to accrue until repaid, i.e. the interest is calculated based on every day's balance individually.

CliveOfIndia

Superhoopza said:

From speaking to them I got a 3 month interest waiver from them. I was assured no markers would be put on my account. There is no worry of this I presume? I'll still make over the minimum payments each month.

Without knowing the full details it's hard to say.  I'm not sure quite why or how they've given you a 3 month waiver.  Usually, if they offer some sort of arrangement which means you're paying less than you are contractually obliged to, this would be recorded on your credit file - even if, internally, they don't mark it negatively on your account with them.

With any credit card, you ideally want to be paying the full balance each month, not just "over the minimum".  Otherwise you'll be racking up interest each month.  I fully appreciate this is not always possible, but if you're in the situation where you're unable to clear in full every month, it may be an idea to take a look at your budget and see if spending can be reduced anywhere.  Short-term pain for long-term gain, as the saying goes

Superhoopza

grumbler said:

Unless you pay the statement balance in full, lowering the balance for three days has very little effect on the total interest charged. Only if this £2K pay the last statement balance in full, this will make difference as the interest on the last statement purchases will be waived.

eskbanker said:

Repaying and then spending £2K will have a net impact of zero on the balance, but not the interest.

The interest will have been accruing every day on the larger amount (including the £2K) up to the date on which you repaid £2K, then will be calculated on the reduced balance for each day up until you spent again, after which it would continue to accrue until repaid, i.e. the interest is calculated based on every day's balance individually.

Both saying the same thing. My point was I made a payment to reduce my balance and then subsequently purchases totalling the same amount within days of each other, net balance impact of zero, but my interest jumped from £32 to £124. All things being equal, my interest should be roughly the same (bar the difference for a few days).

What barclaycard seem to have done is used my £2k payment to reduce my previous balance, so the next month charged me very little interest and ignored the £2k spent on the account. Then the month after, hit me with two lots of interest charges on the £2k spent.

Superhoopza

CliveOfIndia said:

Superhoopza said:

From speaking to them I got a 3 month interest waiver from them. I was assured no markers would be put on my account. There is no worry of this I presume? I'll still make over the minimum payments each month.

Without knowing the full details it's hard to say.  I'm not sure quite why or how they've given you a 3 month waiver.  Usually, if they offer some sort of arrangement which means you're paying less than you are contractually obliged to, this would be recorded on your credit file - even if, internally, they don't mark it negatively on your account with them.

With any credit card, you ideally want to be paying the full balance each month, not just "over the minimum".  Otherwise you'll be racking up interest each month.  I fully appreciate this is not always possible, but if you're in the situation where you're unable to clear in full every month, it may be an idea to take a look at your budget and see if spending can be reduced anywhere.  Short-term pain for long-term gain, as the saying goes

I was sceptical to agree to this but they assured me it was an internal goodwill gesture and no impact will be made on my credit file. What further details would you need that I can help to provide?

Superhoopza

Easier with timelines:

Dec 12th statement for previous month period gave interest of £90. Then on 13th Dec I made payments for £2k and on 15th Dec spent £2k. Net impact on next statement of zero

Jan 12th statement reduced the interest down to £32 and then Feb 12th statement increased it to £124

Superhoopza

They are also saying if I make a substantial (but not full) payment now, my interest will not change until it is paid off in full. I questioned that to say do you mean I will still incur interest but not as much and they said no my interest will not change. That seems odd?