OT: Credit card interest charge calculation
Jun 6, 2014, 12:48 am
#1
Original Poster
Join Date: Jan 2010
Posts: 441
OT: Credit card interest charge calculation
Just wondering if the Amex rep I just spoke to was telling porkies. Last month I spent c800 on my BA (basic) Amex and repaid the minimum payment plus £500 by the due date due to tight cashflow. I then had an interest charge added of £31! I called Amex to querie and they said that interest is calculated on the total balance (I.e including what was repaid so £800). This makes no sense to me, and even if it is on £800 it still seem high. So how is it that they got to £31?
Also is it true that it should be charged on the total spend rather than what was outstanding by the due date?
Also is it true that it should be charged on the total spend rather than what was outstanding by the due date?
Jun 6, 2014, 12:58 am
#2
Join Date: Mar 2008
Location: North West, UK
Programs: BA GfL (GGL/CCR), Hilton Diamond
Posts: 1,998
OT: Credit card interest charge calculation
Credit card providers now charge interest on the total balance on your statement. Have a look at your TS&Cs. Rip off really. What's worse is that you will continue to rack up interest until you clear the balance. So I'd get it cleared asap.
Jun 6, 2014, 2:21 am
#3
Join Date: Jun 2010
Location: England, North
Programs: ihg plat, hh gold, hertz 5*
Posts: 634
It was like this at least 15 years ago.
They charge interest, in full, for every day from the initial transaction until the payment is made. They waive the interest payments only if the entire balance is paid in full at the end of the month, otherwise you pay for every day.
A friend accidentally underpaid by 1p, and got an interest bill of something like £12 for that month, when there would have been no charge if paid in full.
By my reckoning, it would take nearly 80 days for £800 of credit to add up to £31 of interest, so that still doesn't seem right (unless there was a cash advance or gambling transaction).
They charge interest, in full, for every day from the initial transaction until the payment is made. They waive the interest payments only if the entire balance is paid in full at the end of the month, otherwise you pay for every day.
A friend accidentally underpaid by 1p, and got an interest bill of something like £12 for that month, when there would have been no charge if paid in full.
By my reckoning, it would take nearly 80 days for £800 of credit to add up to £31 of interest, so that still doesn't seem right (unless there was a cash advance or gambling transaction).
Jun 6, 2014, 6:58 am
#4
FlyerTalk Evangelist
Join Date: Jan 2003
Location: somewhere north of London, UK
Programs: HH Gold, BA Silver, Accor Silver
Posts: 15,245
By my reckoning, it would take nearly 80 days for £800 of credit to add up to £31 of interest, so that still doesn't seem right (unless there was a cash advance or gambling transaction).
Jun 6, 2014, 11:33 pm
#5
Join Date: Jun 2012
Location: London
Programs: BA Executive Club
Posts: 999
The interest is normally only waived on full payment of the balance. If you do not pay off in full then the interest rate which for the BA Amex is advertised at (15.9% although it could be higher / lower so check your statement) will be charged on a daily basis on each transaction until the balance is paid off.
Transactions from a previous statement are not taken in to account if you paid off in full and the interest is not compounded. Interest is not charged on money you do not owe (i.e. before the date of the transaction / after part payment of the balance)
Assuming that you spent £800 on 28th April and your payment came out on 6th June (39 days) and assuming you have spent nothing else over that period and interest rate is 15.9% then you would calculate simple interest as follows:
£800 x 39 (days) x (0.159/365) = £13.59
(if you applied further transactions / the £800 is formed from multiple transactions on different dates you need to repeat the calculation for each day based on the balance)
Once repayment is received you will be charged residual interest on the remaining balance until you have cleared it in full. If you pay your balance off in full next month the interest will be calculated until that payment is received.
If you pay the remainder of the balance now you will clear the balance and they should not charge any further interest. But beware, if you have new transactions in this period, Amex may apply your most recent payment to the new purchases rather than residual debt from the previous statement. My advice would be to clear the balance in full, now if you can.
The interest they have charged based on the above sounds too high. Ask AMEX for a breakdown of how they have calculated the interest.
If they refuse to provide this make a complaint in writing formally disputing the amount of interest you have paid and requesting a full break down (they have 8 weeks to respond). After which you can refer the complaint to the financial ombudsman. I doubt that would happen as AMEX are normally quite good, unfortunately the call centre staff may not understand the interest calculation themselves so would need to escalate your request to get the breakdown if their standard response does not satisfy the customer.
Transactions from a previous statement are not taken in to account if you paid off in full and the interest is not compounded. Interest is not charged on money you do not owe (i.e. before the date of the transaction / after part payment of the balance)
Assuming that you spent £800 on 28th April and your payment came out on 6th June (39 days) and assuming you have spent nothing else over that period and interest rate is 15.9% then you would calculate simple interest as follows:
£800 x 39 (days) x (0.159/365) = £13.59
(if you applied further transactions / the £800 is formed from multiple transactions on different dates you need to repeat the calculation for each day based on the balance)
Once repayment is received you will be charged residual interest on the remaining balance until you have cleared it in full. If you pay your balance off in full next month the interest will be calculated until that payment is received.
If you pay the remainder of the balance now you will clear the balance and they should not charge any further interest. But beware, if you have new transactions in this period, Amex may apply your most recent payment to the new purchases rather than residual debt from the previous statement. My advice would be to clear the balance in full, now if you can.
The interest they have charged based on the above sounds too high. Ask AMEX for a breakdown of how they have calculated the interest.
If they refuse to provide this make a complaint in writing formally disputing the amount of interest you have paid and requesting a full break down (they have 8 weeks to respond). After which you can refer the complaint to the financial ombudsman. I doubt that would happen as AMEX are normally quite good, unfortunately the call centre staff may not understand the interest calculation themselves so would need to escalate your request to get the breakdown if their standard response does not satisfy the customer.