I regularly check the balance on my credit card and today checked my statement online to see my FF points balance. I always pay my balance off every month except for last month where I messed up. I paid all of the balance except for $200 and the interest charges were $83. I rang the bank and asked them to explain how the interest is calculated but got an overseas call centre who explained that I had made the payment after the due date. I pointed out that I had made four payments during the month paying all the balance less $200 and they were only looking at the last payment. Bank reversed the interest charges but will only send a brochure out to explain how they calculate charges. To me it seems mathematically impossible to charge that amount for $200 unless the interest rate is 26% per month. I know it has been reversed but feel for the people who cannot pay off their balance every month.
I will also be shortly looking for a new credit card. My husband has a 28 degree credit card with a small limit for his purchases and for when we travel.
How are interest charges calculated on credit cards?
Comments
Thank you greenpossum. They did warn me that the next bill would have interest on the interest. This is a once off for me but I am thinking of the people who either knowingly run up their credit card or can't afford to pay off their balance each month. Not a good place to be.
You only get the 45-55 day interest free period if you make payment on time in full.
The trap is if you don't, they will backdate all your interest on all the purchase you have made, disabling the interest free period.
Let's say you got a bill of $3,000 and you made payments for 2800 out of that 3000. They would be charging interest on your outstanding balance progressively, taking into account your payment, for example, 3000 for the first week then you paid 1k, 2000 for another week, then you paid 400… You get the idea. They don't just charge interest on the 200 outstanding.
June 1 - 3k purchase with last interest-free day being June 30.
June 7 - 1000 payment
June 14 - 1000 paymentSo if I don't pay the full amount on June 30, I would be paying interest on $2000 from June 7 - June 14, and then interest on $1000 from June 14 - June 30?
Correct. Plus it net rest on any new purchases after the statement date.
Thanks denn31 for your reply. You must have read my credit card statement. My bill was for 3300! What you have said makes logical 'sense'. No wonder banks make big profits. It just capped off a week where Western Power disconnected the Power of the duplex house next door leading up to its demolition and accidentally disconnected ours at the same time. We were without power for two days while there was a war of words. Final result - we avoided a bill of low thousands to reconnect the power supply and they admitted their fault (when our suburb was put onto underground power 20 years ago, the company ran our 'underground power' through the joined roof line and from power board to power board). The credit card bill just capped it off.
No problems, I just estimated on how much you paid interest and came up with close enough example.
And yes, they make profit on unwitting customers who thought those interest free period really means interest free.
It depends a lot on the credit card, you have to read the fine print. In the worst case, they could charge interest on the amount owing, backdated to the purchase. And then there's a trap, if you pay off the debt plus interest as stated on the statement, this doesn't cover the additional interest racked up the the arrears so you are still in the red the next statement, so you actually have to pay a bit more to clear the debt.