Credit card interest - is this right?

[CompletelyFlummoxed]

DH and I have a joint credit card and usually pay half the balance each - we always pay it off in full each month. This month we accidentally underpaid the balance by £50 - not sure how. So the full balance owed was £3000 and we only paid £2950 in total. Got the bill this month to find we have been charged £65 interest! The apr is 23%. We have queried it with the credit card company who say as we didn’t pay the balance in full we have been charged interest on the entire amount we owed last month - ie £3000. Can that be right? Surely it should just be interest on the outstanding balance - ie £50?

No it's right.

I thought if you underpaid they charged you interest on the subsequent spends, i.e the current month's balance. However, if you have a track record of paying in full and this was an error it might be worth ringing them and they might waive it- they have for me before when ive made the same mistake

The customer service advisor was very explicit that it was interest charged on the full £3000 balance and said that if the payment date is missed interest is charged on the full amount not just the part missed. No mention of it being on subsequent payments though that would make more sense.

Yes if you don’t pay it in full you pay interest on the whole statement balance.

your card will also not be a joint card one of you will be the primary card holder (all the power, all the responsibility) one will be a secondary card holder (no power, no responsibility)

Wow - genuinely had no idea that was the case - so we could underpay by a penny or just make the minimum payment and we’d be charged the same? Gutted as we’re always so careful to pay it off usually - not sure what went wrong this time.

yes sorry @Wolfpai just described it as a joint credit card for ease but that is indeed what we have - DH is the primary holder and I just mess up the maths

It is easily done, there are lots of rules to credit cards that aren’t overly publicised.

I once had a card that had several different interest rates running at the same time it became quite confusing on what was going to get paid first.

What DH could do, is set his credit card to take the whole outstanding amount automatically and then you transfer half to his bank each month

The settings would be within his credit card account (mine are and I am with Tesco).

We’ll have a think - definitely won’t be making this mistake again! Just so frustrating as it seems such a harsh penalty given the small sum involved.

Yes if you don’t pay it in full you pay interest on the whole statement balance.
This.
The card sort of lets you borrow what you spend for the month, and if you pay in full, you pay no interest, but if you pay some of it you pay interest on all of it.

Note that I think you'll be charged some interest next month too, as there will be further interest accruing between the date the statement was produced and the date ou made the payment - as I recall you need to pay the full balance off for two months in a row to get to a position where you no longer pay interest.

It's called 'trailing interest' or 'residual interest'

Ah thanks for flagging that @P00hsticksi didn’t realise that either. I am just so frustrated that what initially seemed to be a comparatively minor oversight has had so many unexpected consequences. Additionally annoying as we are usually so careful about these things!

Listen to Martin Lewis podcast on bbc sounds. His catch phrase on credit card payments is pay off 'IN FULL' or you get charged interest on the lot. We have ours on a monthly DD debit to pay in full every month, that way we can't make a mistake.

I agree with setting it up to pay the full amount and then transferring the money owed by the other person.

It isn't a penalty though. It's applying the interest as per the terms and conditions of the card. It is frustrating and I get that it seems unfair, its likely something the majority of people that have credit cards don't know because how many of us really read the small print, probably not many.

I'd suggest whoever is the main card holder sets up a direct debit to pay the full statement amount each month and then organise between you for the other one to transfer the money to you way ahead of the payment date.

Or better still, get them to apply for their own card and then you are each clearly responsible for your own spends.

I've never had additional card holders on my account ever and I wouldn't do it.

I would definitely ring them if you usually pay it all off as they may waive it.

Thanks all. I think we’ll give them a ring and see what they say. We’ve had this account for at least 15 years and never not paid in full before hence my surprise this month. We just use this card for joint household expenses and it (usually!) works well for us.

I’ve underpaid twice before with Barclaycard, both times they’ve waved the interest when they could see it was a genuine mistake and that over many years I’ve never underpaid. My other credit card is a Tesco one and the only time I paid late, they wouldn’t budge with the interest payment, again I expressed my mistake and that if they look back it had never happened before, to no avail. Unfortunately this is how they make their extortionate amount of money.

It's normal.

I mean, when you think about it, you HAVE borrowed the money for the period they're charging for.

We made the same mistake once, promptly set up a DD for the full balance.

How Does Credit Card Interest Work? | MoneySuperMarket

I actually feel more confused after reading that @UpMyselfas it seems to suggest interest is only charged on the outstanding balance left after the payment date, which is what I previously thought was the case. This bit:

Credit card providers typically apply interest daily on any unpaid amount after the payment due date, unless you clear your balance in full each month.

My understanding is that if you don't pay the bill in full by the payment date, then interest will be calculated and charged on each purchase from the date that the purchase was made.

The total interest will be shown on the following statement, but will continue to be building up between the statement date and when you make the payment, so once they start charging interest you need to pay two monthly bills in full before you get back to having no interest.