How is interest charge calculated if I pay off most of month's balance but not all?

NKS

I'm confused by a massive interest charge from Egg for my credit card. Here are the numbers - can anyone help me understand how this is calculated?

**At my April 27th statement my balance was £1712.78. The statement said that if I only made my minimum payment, the interest would be £48.35
** Before the payment date of 12th May (when I understood the interest would start to be charged) I paid (in several different transfers) a total of £1624.26, leaving an outstanding balance of £88.52
** On my May 27th statement the interest charge was £32.77.

You cannot, surely, rack up £32 of interest on a £88 debt in just one month at a daily rate of 1.35ish%? I asked Egg to explain calculations but just got directed to a FAQ page on how *estimated* interest is calculated, not actual interest.

As I understand it, if the full balance is paid by the due date there is no interest payable on it. Does this change if only part of the balance is paid? I assumed I'd only be charged interest on balance outstanding after the payment due date but it looks like I have been charged interest for more or less a full month on the entire statement balance. Please can someone explain exactly what has gone on, because I'm now confused and grumpy! I could easily have paid off the remaining £88 - in fact I thought I had but must have miscalculated somewhere.

Am I going to be in the same boat with my May statement, which today I DID pay off in full? I rarely use my card but was using it just now to juggle finances for a few months after having had to make an unexpected trip to family overseas just after having spent all my 'unexpected things float' on a replacement car. Back on track now but I don't want any small print tricks to catch me or anyone else out again. Help?

Thanks!

speedbird1973

You're charged all or none! nothing in between. As you didn't pay the full amount you were charged interest on every penny who owed on the statememnt date.

Had you have paid it all off by the due date then you'd only pay interest on the balance from the statement to the due date

i think!

Moggles_2

Originally Posted by NKS
As I understand it, if the full balance is paid by the due date there is no interest payable on it.

If these were all retail transactions made between your March statement and the April one, then that is correct, (provided that you paid off your statemented balance the previous month by the payment due date.)

Moggles_2

Originally Posted by NKS
Am I going to be in the same boat with my May statement, which today I DID pay off in full?

As you made a partial payment the previous month, there will be some residual interest.

NKS

Thanks. I understand a bit of residual interest, but not that much (£32) on such a low residual balance (£88). Is it all or nothing as speedbird says? And if so, what points is the 'all' or the 'nothing' calculated? If it is all or nothing, it'd make little sense to pay off anythign but the minimum payment, and that surely can't be right. Am I being dim and missing somethign fundamental here?

King_Of_Fools

You only get the interest-free period if you pay the full amount by the due date. If you do not pay the full amount then you pay interest on everything from the transaction day until the day you pay it off.

So, you have been charged around a month's interest on the £1712.78 and you will now be accruing interest on the £88.52 remaining. This interest will continue accruing until you pay off your balance in full for two consecutive months.

The total interest charged is related to the amount you pay off because now you are only accruing interest on the remaining balance (i.e. the more you can pay off the less interest you will have to pay next month).

JimmyTheWig

The "residual" interest Moggles mentions will happen next month. I'd say pay off the whole balance now as soon as you can to keep this as small as possible.

As to how it happened, here goes...
You get 56 (or however many) days interest free as long as you pay off the balance in full by the due date. If you don't then you don't get these interest free days.
You didn't pay off the full amount, so don't get zero interest.
So you will pay interest on the full balance up until the first payment. Then you will continue to pay interest on the reduced balance until the second payment, etc. And you will continue to pay interest on the £88 until it is paid off.

[I can't remember whether you pay interest from the statement date or from the purchase date, but that's not particularly relevant here.]

I'd suggest contacting them and pointing out that you made a mistake. Tell them that you didn't understand such a mistake would be so costly. Point out that you paid most of the balance (and it was only a mistake on your part not to have paid the full balance) but have been charged nearly as much interest as if you had paid the minimum. Ask them to waive the interest this time.
If this is the first time you have done this most companies will accept it.

JimmyTheWig

NKS wrote: »

If it is all or nothing, it'd make little sense to pay off anythign but the minimum payment, and that surely can't be right.

By having paid off nearly the full amount you have ensured that next month you only get charged residual interest, rather than another big bill.

NKS

Damn! Ah well, now I know better for the future...

Nasty little trick of theirs, that, isn't it? Never saw it anywhere in the T&C (I did look for something on it today)

Thanks loads for clearing that up everyone! (will try the 'I made a mistake' approach Jimmythewig - good suggestion - but won't hold my breath)

King_Of_Fools

It would shown as something like this:
http://new.egg.com/visitor/0,,3_61028--View_1150,00.html

Interest-free period
Maximum 45 days for purchases if you pay your balance in full and on time.

jamalfatty

Easiest way to explain it is they calculate your interest every single day on what is outstanding that day, this is then all added up when your statement is produced and is your total interest for the month.
So even if you had paid the extra £88 this month, you still would have had interest, albeit a little bit less