Massive Credit Card Interest

randombloke

My first post....

Anyway, just wondering what people think of this....
I have a credit card from an irish bank and have had the same one for ~10 years. I have always paid my bill in full every month so therefore have never paid interest. A couple months ago I got a bill for about 3,200 and instead of paying it all, i only paid 2,800 because someone else owed that 400 and they hadn't paid me yet. Grand I thought, I'll have to pay interest on that 400 that I didn't pay....big deal.... or so i thought. On my next statement was an interest charge of 55 euro. I phoned them to query this and they told me that unless you pay the full amount, you get charged interest on the full amount. I then asked what if i paid 3199 of the 3200 and they told me that in that case I would still pay interest on the full amount and not the 1 euro i actually owe this.
A few simple sums: 55 euro interest on 1 euro is 5,500%/month or 66,000%/yr
This doesnt sound right to me even if it says so in the terms and conditions.

Anybody any thoughts....

randombloke

Laguna

Yeah, what the guy said to you is right, your interest is calculated on your purchases for that month, so €55 for that month is correct, that's why if you make a big purchase, it's always best to completely clear it to avoid getting stung for the whole interest (i.e. if you spend a grand on a new P.C, don't pay off €800, pay the €1000 back as your interest won't be calculated from the €200 you still owe, but the full €1000). Bottom line, credit cards are wrong, stick to direct debit cards if you can (and must use some form of credit purchase), as with a card like a Laser card, you can't spend it unless you actually have it!

randombloke

Thanks, I still think it's robbery though. I'm thinking about writing to ombudsman etc.

Just because it says so in their terms and conditions doesn't make it fair, especially when i have been a good customer. Also thinking about changing credit card if i have no joy...

Laguna

Changing your card won't change a thing mate, they all operate with the same interest policies!

Trust me, the best solution in this case is to go through the debit card route that takes funds directly from your current account when you use it, not only will the interest paid be a lot lower, it'll act as a greater deterrent as to not using it, saving you even more money in the long run!

Guy:Incognito

randombloke wrote:

Just because it says so in their terms and conditions doesn't make it fair

No, but the fact that it is all disclosed to you before and you accept it by signing up means they are absolved from blame.

Trouble

I agree it is robbery and the worst thing is most people aren't aware that they are charged interest on the original balance until it is cleared to 0, and that is how credit card companies make their money and keep on uping peoples credit limits. It is something that should be advertised better and not just in the small print of the T&C's

Tenshot

Essentially, the credit card companies consider that they are doing you a favour offering a free interest period at all. To earn the favour, you have to pay off the debt in full within the stated period, otherwise the favour is revoked and you pay full interest.

(Which is at least better than having to pay full interest from day one.)

Last year, I almost got caught out by something even more subtle: I bought an item, got double-charged, and contacted the supplier who agreed to refund the second charge. The refund hit my card account a couple of days after the statement date. A week later, I checked online banking to see how much I owed and paid the full amount outstanding, to get my balance back down to zero.

Next month, I had a hefty interest charge - because the amount I had paid was less than the original amount on the bill. Since the refund hadn't hit my account until afterwards (though still well before the statement due date), I wasn't entitled to count it as part of the payment of the previous month's charges. And since it was over Christmas, there was several thousand quids worth of accumulated charges.

In fairness to AIB, my card supplier, when I rang them and pointed out how silly this was, they did agree to waive the interest for that month given the circumstances.

Sponge Bob

I always found AIB CC central reasonable where cockups occur , if that was MBNA you would not have been able to explain anything.

Dellgirl

WHATWHATWHAT????????:eek: :eek: :eek: :eek:
***k ***k ***k
I didnt know that!!! OMG>Im screwed.

Enii

Laguna wrote:

Yeah, what the guy said to you is right, your interest is calculated on your purchases for that month, so €55 for that month is correct, that's why if you make a big purchase, it's always best to completely clear it to avoid getting stung for the whole interest (i.e. if you spend a grand on a new P.C, don't pay off €800, pay the €1000 back as your interest won't be calculated from the €200 you still owe, but the full €1000). Bottom line, credit cards are wrong, stick to direct debit cards if you can (and must use some form of credit purchase), as with a card like a Laser card, you can't spend it unless you actually have it!

OMG! I never knew this. Was planning on booking a holiday but only paying half off this month and half off next month - thought i would only pay interest on the half I did not pay off and would not have to pay off interest on the whole amount.... Will have to have a rethink, methinks!

Dellgirl

This deserves its own sticky somewhere.

randombloke

Yeah enii, I couldn't believe it when i found out, I'd say there's thousands like you and me who didn't know.
This is probably why they got away with the overcharging for so many years......people didn't understand how the interest was calculated. It won't happen to me again i can assure you

skywalker

I also didnt know that. Thats really good info to know for credit card users to know.

Ive had a credit card for 3 or 4 years now & always pay off the entire amount every month, without fail. If you cant do that then dont have one. Its the only way to use them.

parsi

randombloke wrote:

Yeah enii, I couldn't believe it when i found out, I'd say there's thousands like you and me who didn't know.
This is probably why they got away with the overcharging for so many years......people didn't understand how the interest was calculated. It won't happen to me again i can assure you

Its not overcharging. The charges are exactly as published in the T&C booklet you get when you sign up. Indeed I find it hard to believe that there are people who don't know about this (i.e dont read the literature).

As a previous poster said - the way to use the cards is to pay the statement balance off on time. Any other method is just opening yourself up to incurring interest payments.

This actually was an issue that I thought Eddie Hobbs would have raised (i.e. everyone knows about it but he could have gone all dramatic about it and claim stealth interest rates etc) but he barely mentioned credit cards. Probably because he was some sort of consultant for the banks.

I imagine (in true Hobbs style) that there is more money paid out in credit card interest than a lot of the so-called stealth taxes...

Gegerty

I know its easier said than done but you shouldn't use them unless you know you will have the funds to pay it off before the interest hits. You have until the end of the next month to pay it off, if your wages won't cover it by then and there's going to be hefty interest then hold off. The purpose of a credit card is to give yourself a short term loan to cover a bad spell or an emergency like repairs to your car etc. Anyone who thinks you can slap things on the credit card and pay them off bit by bit are exactly the kind of people they like and it shows that their advertising works.

IMO there should be stricter rules on how they advertise and the almost invisible small print at the bottom of the screen in the last 5 seconds of the ad should be stamped out in the same way the mobile phone ring tone ads were.

Duiske

Nice tip off. I didn't realise that was in the small print. I pay off the full amount every month via Direct Debit. As Trouble mentioned earlier, I did notice that A.I.B. were increasing my limit every so often (up to 5,700e at one stage). I had them reduce it to 1,500e and asked them not to increase it again. Have to say, A.I.B. service staff are very easy to deal with.

Sponge Bob

I understand that the financial regulator now stops them from increasing limits save at your explicit request.

Eddie cannot be blamed for this issue (the annoying little git) , CC payment rules in other countries are the same as here more or less .

parsi

Indeed but that didn't stop him from droning on about other things which are similar in other countries - eg doctors fees, cost of wine in resturants etc etc.

RainyDay

If you're not going to be able to clear the bill in full, then make sure you make your partial payment as soon as possible after the statement date to minimise the interest costs.

Tenshot

Originally Posted by RainyDay
If you're not going to be able to clear the bill in full, then make sure you make your partial payment as soon as possible after the statement date to minimise the interest costs.

Better still, make your partial payment as soon as possible after you make the purchase -- there's nothing to stop you paying in money in advance of receiving the statement, and it will further reduce the amount of interest that accrues. (You can even go one step further and deposit money before you make a purchase, which is a handy way to temporarily overcome a low credit limit.)

BTW, I must concur with the positive comments earlier about AIB Visa customer service, who are invariably polite and helpful whenever I ring them with a query or problem.

zippo22

Tenshot wrote:

Better still, make your partial payment as soon as possible after you make the purchase -- there's nothing to stop you paying in money in advance of receiving the statement, and it will further reduce the amount of interest that accrues. (You can even go one step further and deposit money before you make a purchase, which is a handy way to temporarily overcome a low credit limit.

You're dead right there. You should only ever use a credit card for convenience. I myself only use it for purchases over the internet. As soon as I make a purchase I go straight into Banking365 and immediately pay off whatever I've spent. In the past five years I've never paid a farthing in interest on a credit card.

RainyDay

zippo22 wrote:

You're dead right there. You should only ever use a credit card for convenience. I myself only use it for purchases over the internet. As soon as I make a purchase I go straight into Banking365 and immediately pay off whatever I've spent. In the past five years I've never paid a farthing in interest on a credit card.

That's a bit of a generalisation. If you are smart & disciplined, you can put every cent of possible spending on your credit card and get 4-7 weeks extra cash flow by pushing out your repayment until the last minute. You can also earn cashback/points/bonuses on some cards (Amex Blue 1% cashback is my favourite). Don't be afraid of your credit card, but don't let the banks screw you either.

daveirl

This post has been deleted.

jimmycrackcorm

Are there any cards that do not follow this rule and only charge interest on the outstanding amount?

zippo22

daveirl wrote:

This post has been deleted.

Exactly what I said. You should only use a credit card for your convenience.

Manuel

OK, this was news to me, and I've had a CC for nearly 10 years!

My CC Company are sending me out the document that describes how they charge interest, but in advance of that, can somebody have a stab at explaining this?

2 months ago I got hit for a big lump of interest, so I made sure I covered the outstanding balance for the next bill. In the meantime I ran up a few nice new chunky debts for that month. Next bill came - no interest charged.

Now my subsequent bill has a previous balance of 2424, and hits me with interest (allegedly ~1.5% per month) of 50 Euro!

Now I'm no actuary, but I do know that 50 is 1.5% of 7500, not 2424!

Can anybody explain this (in general)?

Thanks,
/M.

Manuel

Sorry, I'm an idiot.

1.5% of 2424 is 36.36. It's still not 50 though ....

From the above thread I understood that if you don't pay off your balance the previous month, you get charged interest on that, but it's clearly not as simple as that. Anyway, I'll read the doc when it comes. I might post up a summary if it helps ....

/M.

daveirl

This post has been deleted.

cch

So can anybody please explain how it works if there's lots of little purchases over a few months, instead of the example of one big purchase? Is the interest based on the highest ever previous balance or something?!

mcaul

Switch over to National Irish bank - they are the only credit card issuer who only starts adding interest after the credit free period is up. They do not back date the interest to the purchase date even on cash advances!


I had this problem alst year when I had to make company purchases via credit card of over €20k - paid off all compnay purchases with cheque from comapny well before the pay by date, and left approx €500 of personal purchases till the following month. - Got wallopped with interest of over €300! - Paid it off and switched all accounts incl. mortgage out of Bank of Ireland. - Will never grace their steps again.

All the banks used to have this system but they all sent a sneaky circular around about 3 years ago (maybe more) changing the way interest is charged so that they make more money.


Pity NIB don't advertise this difference strongly as I'd expect they would have a huge number of new applications.

Manuel

I don't want to flog this to death, but if I understand correctly then, anything you pay in to your CC account goes towards paying off your existing debts in chronological order, so if what you've paid in just happens to cover 99% of one of the previous months' payments, you will get hit for interest on 100% of that payment ...? Unreal ....

This just might be the final straw that forces me to eventually leave my bank, after so many idle threats .... if there's an alternative of course ....