UKC

How do card companies make money on 0% balance transfer cards? I've had one for about two years and I'm just coming to the end of the interest free period. Because I still had some balance outstanding I applied for and got a balance transfer card from another bank and have transferred the balance.

Do the card companies rely on some customers eventually paying interest?

Yes definitely they do. Don’t think all credit card users are sensible like you. I’m sure millions if not tens of millions of people do not pay off their credit cards every month, or worse, hold medium/long term debt on credit cards, paying tens to hundreds of pounds in interest per month. Then spend a period of years paying off the credit cards (hopefully one day breaking free of it). All those people can fund the benefits like interest free, and the 1% cashback or whatever Amex gives you. It’s probably the same proportion of their profits as free coffee at a casino. 😂 

I think so, yeah. I'd never allow myself to fall into the trap, but I'm a bit obsessive with not paying card companies any interest (apart from the initial transfer fee) but I appreciate it could be an easy thing to fall into 

Where do you find a card that doesn't have a transfer fee? Back when I had an offset mortgage with 5% interest I spent a while juggling a chunk of it on interest free cards. Then they introduced balance transfer fees and it just wasn't worth it any more.

Well the card I've just taken out had a fee that works out at about £20 which is no big deal.

Well there you go then, that's how they make their money. The money is so cheap to them, that even charging £20 will net them a profit. What percentage is that, out of interest? 

When I was doing this they didn't get a penny out of me. I borrowed £10k and paid them exactly £10k, not a penny more. I guess that's why they introduced transfer fees! 🙂

The way to avoid transfer fees is to go for a 0% on new purchases card for as long as possible. Spend on the new card but (except for minimum payment) pay on the old card. After a few months (you need to take a bit of care with the timing) the whole balance will be on the new card and the old one paid off.

After x months, repeat.

Warning: not suitable for those without strong financial discipline.

Yep, did this back in the day of 5% mortgages...oh yeah, just seen the news! Through offsetting the mortgage with our current accounts as well, we saved loads; I can see this being more and more useful. At work I'm quite amazed at the lack of knowledge and planning round finance.

Yeh but are you borrowing £20k or £200 ?

That's me, I use my card for everything and pay in full every month until the time I didn't.

I booked a campsite for 30 ish people, some paid by check, some with cash and some bank transfer. I paid the card company for every pitch except my own by mistake. My original ballance was a couple of grand (the holiday plus my month's purchases and fuel for my van) I was about £40 or so short.

Next month there was around £200 interest, I rang them to ask why I was being billed £200 interest on a £40 debt and was told that they charge interest on the full balance and not the outstanding balance. I can't see how that is legal.

Fortunately they accepted that I had made a a genuine mistake and credited my account for the interest.

Ps how do they make money, ae well as relying on people not paying in full they also get a % of all purchases. 

I think you get one interest "freebie" if your previous payment history is good, but I bet it'll still show up in your credit history.

Sometimes you just have to accept that you've fouled up (even if the circumstances make it understandable) and take the hit.

There isn't much to show on my history, I didn't miss a payment I just missed paying the full balance that month. 

I agree and had they just charged me interest on the outstanding £40 I wouldn't have contacted the but £200 for paying something like £3000 instead of £3040 is taking the piss. (before anyone starts doing the maths these are made up numbers, it happened 15 years ago and I can't remember the exact numbers) 

They also get a cut of the fees that Mastercard/Visa etc charge merchants.

Yeah, I agree it seems unfair and I would have protested if in your situation. But I bet that's what it said in the T & C's that you signed up for.

You pay zero% as long as you pay the full balance on time. If you don't, you pay interest on the full amount, not just the outstanding.

They wouldn't offer zero% deals if it was easy to avoid ever paying any interest.

Of course. I always forget about the commission they charge the vendors. 

I've applied and got an Amex card a couple of months ago cos there's a nice cashback scheme on it, but I've always got to carry a second card around because a few places don't accept Amex due to high commission charges.

Mrs Tc has mentioned that she fancies a cruise in a couple of years... I'm going to try and time it right so that we apply for an Amex card for her, book the cruise on it, pay it off from savings and then get the cashback. 

The only time I've paid interest on my credit card was through my own stupid mistake, actually being a bit over zealous with the payments. Made the October payment, then a month later I made what I thought was the November payment... Only the periods hadn't tripped over... I'd actually made two October payments.

At the end of November got a "missed payment" charge. Card company were fine and refunded me even thought technically I was in the wrong. Common sense and discretion prevailed (although I probably have a black mark on my credit file) 

I had that problem in France. Only big businesses seem to take Amex. I think the only thing I used mine for was a train ticket on SNCF

To be honest, more places accept it than I thought. I thought it would get refused a lot more than it actually does. 

It probably was, no doubt of page 62 in print so small you need the hubble to read it. To be honest I can't see how it's legal, must make it very hard if not impossible to get in front of debt. 

Effectively you pay the daily interest on every day's closing balance, but if you pay off the whole balance in time then they'll waive all the interest.

When you look at it like that, then the large amount of interest compared with the small outstanding balance makes more sense.

Yes. I'd be surprised if you don't know at least one person who just can't get their s*** together. For a certain percentage of the population coping with full UK level adulting is simply too much and for a somewhat larger percentage of the population, it takes them time to fully get into it, and during that time balls get dropped and debts get incurred. It's a particular problem ofc for people who end up going fully independent at a young age without having had partial independence to prepare them for it. If you want to read an entertaining example of how adulting fail can happen to people, I give you:

http://hyperboleandahalf.blogspot.com/2010/06/this-is-why-ill-never-be-adul...