0% confusion

itsthelittlethings

I did a balance transfer on 0%. I transferred around £1000 and paid the fee. I also had three months interest free purchases. I purchased something for £500 inside that three months. In the next month I paid off more than £500. I have regularly been making well beyond the minimum payments monthly and extra payments as and when. When my statement came this month (the interest free purchases finished on 29th January), there was a £9 interest charge. I tried to ask for an explanation on chat as in my mind I shouldn’t have any interest to pay. They said I’d need to clear the entire balance not to pay any interest. I thought payments automatically went towards the highest interest portion of your loan. In addition I thought I had three months to make purchases which would be interest free for the rest of the fourteen months of the balance transfer. Can anyone explain so I understand why I’m now paying interest. Thanks.

molerat

Depending on the particular card rules it is likely that the payments were all going towards the balance transfer - if more than one balance is at 0% they can allocate the payments however they wish according to the T&Cs - leaving the purchase still outstanding at the end of the term.  You need to read exactly what you signed up to, not all interest free purchase deals are for the full term of the BT deal, they can be a booby trap for the unwary.  Which card is it ?

grumpy_codger

itsthelittlethings said:

...They said I’d need to clear the entire balance not to pay any interest. I thought payments automatically went towards the highest interest portion of your loan.

You are right. Your statement has to show the breakdown of your balance with interest rate for each portion.

BrotherUuurgh

Normally your "3 months interest free on purchases" promotion means you have 3 months in which you can make and pay for purchases at 0%, normally from account opening. Any purchase balance outstanding after that time period will then be charged interest at the rate in your particular contract. Something like that. It gets messier when you merge that with a BT due to the different ways that lenders allocate payments. As above, it will be there in the terms. 

Best thing to do is to ring them to find out what you need to do to get that balance cleared so you can carry on with clearing your transfer. 

surreysaver

BrotherUuurgh said:

Normally your "3 months interest free on purchases" promotion means you have 3 months in which you can make and pay for purchases at 0%, normally from account opening. Any purchase balance outstanding after that time period will then be charged interest at the rate in your particular contract. Something like that. It gets messier when you merge that with a BT due to the different ways that lenders allocate payments. As above, it will be there in the terms. 

Best thing to do is to ring them to find out what you need to do to get that balance cleared so you can carry on with clearing your transfer. 

Ringing them up assumes the person on the other end of the phone understands it, which quite often they don't, which can make things worse.
You just need to read and understand the T&Cs yourself. Or just don't mix balance transfers and purchases.

DullGreyGuy

itsthelittlethings said:

I did a balance transfer on 0%. I transferred around £1000 and paid the fee. I also had three months interest free purchases. I purchased something for £500 inside that three months. In the next month I paid off more than £500. I have regularly been making well beyond the minimum payments monthly and extra payments as and when. When my statement came this month (the interest free purchases finished on 29th January), there was a £9 interest charge. I tried to ask for an explanation on chat as in my mind I shouldn’t have any interest to pay. They said I’d need to clear the entire balance not to pay any interest. I thought payments automatically went towards the highest interest portion of your loan. In addition I thought I had three months to make purchases which would be interest free for the rest of the fourteen months of the balance transfer. Can anyone explain so I understand why I’m now paying interest. Thanks.

Whilst most look at the single balance at the bottom of the statement in reality there are multiple sub balances based on different promotions, interest rates etc. 

You need to read the terms and conditions about what happens when you make a payment. The law requires that the payment is credited to the sub-balance with the highest interest rate at that time but in your case when you paid the £500 both balances were at the same interest rate. Where there are multiple sub-balances with the same interest the law is mute on which it should be applied to and each bank has its own T&Cs. Some will prioritise the oldest balance, others will prioritise the one coming off promo first etc.

From what it sounds like most or all of the £500 was credited to the balance transfer and so now the 0% has ended on the purchases its incurring interest. Your next payment will be credited to that bucket as its now the highest interest rate but the outstanding balance is continuing to incur interest on a daily basis so again next month you'll see some interest on the interest even if you pay the sub-balance off in full.