I’ve got a Barclaycard, so I was interested in the news of a new facility they sent me: the Barclaycard Purchase Plan. This offers a 0% deal on a single new purchase for an up-front fee, all run as part of your normal credit card account. Launched in summer 2015 I’ve found out a bit more about how it works and there are a couple of things to be be careful about.
Setting up a Purchase Plan
Barclaycard suggest you might use a Purchase Plan to spread the cost of a large item such as a TV or taking a holiday. It is being offered to Barclaycard customers who are considered eligible, taking into account good payment behaviour and credit history. The plan will be part of your existing credit card account and uses your existing credit limit, so if you have little spare credit you won’t be offered one.
Barclaycard will make you specific “offers”, which it reviews once a month. You can see any available offers on your online account. Each will include details about what the up-front fee will be, what sort of purchases will be eligible and will have an expiry date.
You need to first check if one is available, then make your purchase using your Barclaycard as normal. Then you go into your online Barclaycard account and set up the Purchase plan for that purchase. At that point the fee will be added and the total divided by the number of months the plan will last for, giving your monthly plan repayments.
What your repayments will be
This is where it gets complicated:
- If you normally repay your account in full each month by direct debit, whilst the plan lasts you will be debited for all new non-Plan transactions PLUS the monthly plan amount.
- If you normally repay the minimum amount, your new minimum will be the minimum repayment for your non-Plan balance PLUS the monthly plan amount.
- If you normally repay more than the minimum but not the whole amount, the Purchase Plan will be repaid first, then the rest will go towards your other balance. As you will be paying interest on the balance, this will effectively be slowing down repaying that, so you will be paying more interest on that in the long run.
Barclaycard supplied what they called a “handy diagram” to illustrate some of this (see illustration) and I showed it to a couple of people who said things like “Hang on, where does that figure come from?” and “If that’s 1/3 of the other amount, why isn’t the minimum payment lower too?”
Most people don’t read their credit card statements in detail and don’t know how a minimum payment is calculated, they just look at their statement and assume it’s right. By having two types of balance (non-Plan and Plan) on the same statement, this is going to get even worse. I suspect even more people’s eyes will just glaze over.
If you are going to go for one of these Purchase Plans, be very sure you know exactly what it will do to your repayments.
How much it costs
The illustration Barclays gave was of a purchase of a TV costing £565, paying over 12 months. the Barclaycard fee which is added on at the start is £35, giving a total cost of £600 and a monthly payment at “0% interest” of £50. NB the offer you may be given may not be identical to this one.
That doesn’t tell you what the overall interest being charged is, which I think is naughty. Charging a £35 fee at the start in this way is the same as charging an APR of 11.25%. I don’t think most people would expect something which contains the phrase “0%” to cost that much.
I’ve seen some online comments where people have guessed at the interest rate is and often they have only guessed about half the true rate, thinking that £35 fees looks like a bit over 5% of £600, right? That’s wrong because it doesn’t take account of the fact that you are repaying the debt over the 12 months, so on “average” you will only have borrowed £300.
In other words, many people are likely to underestimate the actual interest rate and therefore find it hard to make good choices.
It’s not dreadful but …
Now 11.25% isn’t a dreadful rate of interest – it’s a lot less than a short payday loan or the three month loans from payday lenders. It’s less than the normal credit card interest rate and less than many overdrafts. But it’s not the great no-hassle 0% deal it might sound like.
And if you have a good enough credit record to be offered one of these deals, you might be able to get a “real” 0% deal instead by getting a “0% on purchases card”. MoneySavingExpert’s has an eligibility checker that will let you see if you are likely to be offered a 0% on purchase card.
Update – the range of Barclaycard offers available
October 2015 – A reader has kindly sent me a list of the offers which is available to him for single purchases between £495 and £5,000 – I have added the equivalent APRs so you can see how they compare,:
4% fee on 6 months plan: 14.5% APR
5% fee on 9 months plan: 12.5% APR
6% fee on 12 months plan: 11.5% APR
7% fee on 18 months plan: 9% APR
8% fee on 24 months plan: 7.8%
Of course the deals available to you may be different.