Cost of cash advance Vs interest on uncleared balance

S

SHaloe

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I have an AIB credit card that I always clear when it's due. I prefer to pay no interest.

At end of November I will have a CC bill of about 1400 euro due. But I know I will have a once off expense in December of 800 euro that I can't put on my credit card. So I'm looking at the credit card as a way to get that 800 euro on short term credit. (Not the wisest but the convenience at this point is also a factor)
As I see it I have two options here:
option 1 - clear the credit card bill and take the 800 euro as a cash withdrawal on the Credit Card later in the December to be repaid on the next bill - cost would be the cost of the cash withdrawal plus interest on amount advanced, I think
option 2 - make only a 600 euro payment on my November bill, save the difference (800 euro) and use that as cash to make my other payment - cost would be the interest on unpaid balance bill due end November. I would intend to clear it at the next bill. (possible issue here: I read that the CC compnay may charge me interest on the full 1400 rather than just the outstanding 800. Is that correct?)

The question is: which is the least expensive form of credit, taking a cash advance, or letting a balance run on the credit card for a month?
Thanks
 
SHaloe said:
I have an AIB credit card that I always clear when it's due. I prefer to pay no interest.

At end of November I will have a CC bill of about 1400 euro due. But I know I will have a once off expense in December of 800 euro that I can't put on my credit card. So I'm looking at the credit card as a way to get that 800 euro on short term credit. (Not the wisest but the convenience at this point is also a factor)
As I see it I have two options here:
option 1 - clear the credit card bill and take the 800 euro as a cash withdrawal on the Credit Card later in the December to be repaid on the next bill - cost would be the cost of the cash withdrawal plus interest on amount advanced, I think
option 2 - make only a 600 euro payment on my November bill, save the difference (800 euro) and use that as cash to make my other payment - cost would be the interest on unpaid balance bill due end November. I would intend to clear it at the next bill. (possible issue here: I read that the CC compnay may charge me interest on the full 1400 rather than just the outstanding 800. Is that correct?)

The question is: which is the least expensive form of credit, taking a cash advance, or letting a balance run on the credit card for a month?
Thanks
Click to expand...
hi! At what bank you have the deposit?
 
It's very hard to understand the terms and conditions. They vary depending on your card.

If you withdraw €800 cash in December you will pay a cash advance fee of 1.5% or €12 immediately. I don't think interest applies if you clear it in full at the time of the next statement.

If you don't pay your credit card balance in full, you will be charged interest as normal, until you again clear the balance in full two months in a row.

So if you purchased €1400 worth of goods on 1 November and pay off €600 at the end of November
You will be charged €1400 @1% or €14 for November alone.
If you make no further purchases, and pay off the €800 at the end of December, you will pay a further €8 at the end of December.
Any purchases made in December and January will be charged at 1% per month. If you clear your balance in full at the end of January, you will be back to the interest free purchases situation.

So, it seems to me that you should clear your balance in full and then take out the cash for your purchase in December.
But make sure to pay off that balance in full at the end of January.

If this is going to happen a few times, ask you bank for an overdraft which is much cheaper.

Brendan
 
I think with some credit cards there is no interest free period for a cash withdrawal. You will be charged the cash advance fee and interest will be charged from the day of the withdrawal. Also, some cards will have a 56 day interest free period for purchases. You would really need to check the terms and conditions of your card.
 
Also, if you don't pay the balance in full, then you get no, or a reduced period to pay the next bill. i.e. the interest free period is gone for that payment (as losttheplot said above).

On my card, if I do not clear the balance, interest apply on each purchase from the date of that purchase. This could be up to a month before the payment is due. So therefore if you don't clear the balance you would wind up paying up to two months interest on the purchase. And iirc, interest applies on all purchases if you don't clear the balance.

I was in your situation once, and taking out the cash to pay the cc fully was the least expensive option.

Note: this applies to my AIB card - I don't know if your card is the same.
 
OK, I rang AIB to confirm my understanding. I have an AIB Classic Visa. She told me it was the same for all cards. But you might want to ring 6685500 to confirm that this applies to your particular brand of card.

If I take out €800 today, I will be charged 1.5% or €12.

If I clear it in full by the due date, I will pay no interest, just the same as any other purchase.

As it happens, I have just got my statement, so if I took out cash today, I would have until 20th December to clear it without paying any interest.

So it's clearly correct to pay off your November bill in full.

This is a common, and very expensive, misunderstanding: "option 2 - make only a 600 euro payment on my November bill, save the difference (800 euro) and use that as cash to make my other payment - cost would be the interest on unpaid balance bill due end November."

If you have a bill of €1,400 at the end of November, you must clear it in full to avoid interest. If you pay €1399, you will be charged interest on the full €1,400 from the dates of purchase, and not just on the €1.

To make matters worse, even if you then clear your December bill in full, you will still pay interest, as you must clear two months in a row in full to qualify for the interest free period.

SHaloe - it is really important that you report back at the end of January and update us on which option you chose and what charges were made.


Brendan
 
It took me a long time to find this information on their website. I might bring this to the attention of the Central Bank.

Interest
51. Interest will not be charged if you pay the full balance shown on your current
Statement by the payment due date shown on the Statement and additionally you
have paid the full balance shown on your previous Statement by the payment due
date shown on that Statement (except in the case of Low Interest MasterCard and
Budget MasterCard where no interest free credit days apply). ...




52. If the full balance is not repaid by the payment due date shown on your
Statement, interest is charged on the full balance from the date the Transaction
was debited to the Account, as shown on your Statement, until full repayment is
credited to the Account.
 
Thanks everyone, and thanks Brendan for doing that research.
I had read on another post on the forum (and wanted to check if it still applied) that if I was to pay €1399, on a €1400 balance I would still be charged interest on the full €1,400 from the dates of purchase, and not just on the €1. I find it astounding but that's how they make their money....

I will give you an update once I've made a decision and let you no how it works out. I may look at other options such as an overdraft but this question seems to have piqued some curiosity so perhaps in the interest of adding to the sum of human knowledge I should go with option 1
 
Last edited:
Brendan Burgess said:
Hi SH

Option 1 is clear.

I have just remembered that I did a Key Post on the topic in 2013.

How credit card interest is calculated. How to get an interest-free period.

You might check it out and let me know if any of it is not clear.

Brendan
Click to expand...

I took a look at that, Brendan. I think the table makes clear what is happening. (If I was to rely on the text of the Terms and Conditions alone I don't think I'd be quite so clear on what was going on.)
Banks should make more use of examples when specifying Ts&Cs. Where there is a lack of clarity, it always seems to work in the favour of the banks rather than the consumer.
 
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