How does credit card interest work?!

[Frankie_W]

Sorry for the dumb questions! I promise I've looked up previous posts and the key posts on credit cards but I think they're designed for people less dim than me

Question 1:

I paid about 10% of what was owed on my credit card this month, leaving me with another e1,500 to clear.

My interest rate is about 15% but I don't know how this is worked out in terms of how I will be charged on the due amount.

Do I pay 15% on the e1,500 in one lump sum at the end of the next month if I don't clear it (e225?), or am I paying interest on a daily rate??? How do the figures work out?

Question 2:

I did a 0% balance transfer a few months ago (to MBNA). I transferred e2000 from my old credit card to the new one but stupidly then used up the rest of the limit on the new card (another e1,000 – the limit on the card is e3,000) on new purchases, etc. This means I’m paying about 19% on that e1,000 (same question as above applies – how does this work out?!)

Am I only paying 19% on that e1,000 (and not on the full e3,000, when e2,000 of it was a balance transfer)?

And if I pay e1,000 in to my second credit card am I clearing that 19% section of my debt, leaving me with six months at 0% to clear the e2,000?

And can I then use that e1,000 to do another balance transfer?

I know, I'm stoooopid!

 

[CCOVICH]

I paid about 10% of what was owed on my credit card this month, leaving me with another e1,500 to clear.

My interest rate is about 15% but I don't know how this is worked out in terms of how I will be charged on the due amount.

Do I pay 15% on the e1,500 in one lump sum at the end of the next month if I don't clear it (e225?), or am I paying interest on a daily rate??? How do the figures work out?

You actually pay interest on the entire balance, e.g. total bill €1,000; you pay €900-you still pay interest on the entire €1,000 this month.

Read the ts and cs applicable to your card-that will outline exactly how interest is calculated-there may be subtle differences between cards.

I did a 0% balance transfer a few months ago (to MBNA). I transferred e2000 from my old credit card to the new one but stupidly then used up the rest of the limit on the new card (another e1,000 – the limit on the card is e3,000) on new purchases, etc. This means I’m paying about 19% on that e1,000 (same question as above applies – how does this work out?!)

Am I only paying 19% on that e1,000 (and not on the full e3,000, when e2,000 of it was a balance transfer)?

And if I pay e1,000 in to my second credit card am I clearing that 19% section of my debt, leaving me with six months at 0% to clear the e2,000?

This all depends on the card:

- Some cards apply payments to purchases and then to balance transfers; - Others do the opposite; so if you make purchases while your balance transfer remains unpaid, you will pay interest on all purchases
- Some cards offer interest free on both purchases and balance transfers; in effect everything (bar cash) is interest free for a set period

I would tread carefully with MBNA, based on what I have seen and heard.

And can I then use that e1,000 to do another balance transfer?

What do you mean-transfer the €1,000 to another card, or use your remaining €1,000 limit to take a transfer from another card?

No set answer to either-depends on what the cc companies in question allow.

As a matter of interest, did you read this Key Post?

 

[Thrifty]

The interest you are referring to on the credit cards is the APR - the annual percentage rate - as its the annual rate - the interest you are charged each month is approximately 1/12 of that. On an APR of 15% the monthly interest charged would be about 1.25% - it should be set out on your statement. Most credit cards have a different rate depending on whether a purchase is made on the credit card or a cash withdrawal (generally charge more for this).

Be careful that other fees such as overlimit fees and late fees are not added. i know with MBNA these are quite high €12.70 every month for over the limit and the limit is based on the amount owed plus the interest for that month so while you may think you are under the limit - the interest owed may bring you over it. I don't know much in relation to your second question - its really a case of the terms and conditions as Ccovich says as each credit card is different. I would advise you to pay as much off the credit cards each month- if you only pay the minimum the debt will never really go down. I would be wary about doing transfers etc before you read up on the terms and conditions and understand how your card works. Its important to know the conditions and penalties to avoid additional unnessessary costs.

 

[Frankie_W]

Many thanks for the help, I'm a whole lot less dim now - thanks again.

 

[Alun]

You actually pay interest on the entire balance, e.g. total bill €1,000; you pay €900-you still pay interest on the entire €1,000 this month.

The T&C for my AIB Visa card say the following ...

Where a part payment is made, interest will continue to accrue and be charged on the remaining balance up to and including the date of the next Statement, when the interest for the period will be debited to the Card Account.

Sounds much more sensible and fair to me.

 

[CCOVICH]

The T&C for my AIB Visa card say the following ...

Sounds much more sensible and fair to me.

But that relates to the next period-you will still be charged interest on the entire balance for the current period.