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Order of Payment

Order of payment refers to the way your credit card repayments are made read our guide to learn more

You might not have heard the term ‘order of payment’ – but if you’ve got a credit card it can make a big impact on how much interest you end up paying.

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What is order of payment?

It used to be the case that lenders could decide in what order your different kinds of credit card borrowing were repaid.

Many lenders had an order of payment which meant that cheaper borrowing had to be repaid before you could start to pay off more expensive debt.

Card providers have a legal obligation to clearly explain what your order of payment is and the following words should appear on each statement:

“If you do not pay off the full amount outstanding we will allocate your payment to the outstanding balance in a specific order, which is set out. The way in which payments are allocated can make a significant difference to the amount of interest you will pay until the balance is cleared completely.”

What interest rates are there?

The average cost of borrowing should always be prominently displayed as a card’s APR (which is an average of all rates and fees related to the card), but credit cards offer several ways of borrowing, and will often charge different rates for these.

The four main types of borrowing and rates are listed below.

  • Purchase – the rate you’ll pay for spending on the card
  • Balance transfer – the rate you’ll be charged on balances moved to the card from other credit cards
  • Money transfer – the rate levied for transferring
  • Cash advance – the rate you’ll be charged if you withdraw cash using your card, or make a cash transaction (such as buying foreign currency)

You can find full details of rates and charges on your card in your credit card summary box.

Negative vs positive orders of payment

With a negative order of payment, you had to pay off the debt with the lowest APR first – meaning that the more expensive borrowing racked up more and more interest while you were waiting to be able to repay it.

However, with positive order of payment, you will be able to pay off your more expensive borrowing first – which could save you money in credit card interest.

What difference does order of payment make to me?

Order of payment can make a big difference to how much interest you have to pay on your credit card borrowing.

If you have borrowed in more than one way on your credit card, for example if you transferred a balance to take advantage of a low rate APR or 0% balance transfer deal, and then also made purchases, or a cash withdrawal you will probably be paying different APRs on all these kinds of borrowing.

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