How Is a Minimum Payment Calculated?

Credit Cards

Credit-card companies issue a minimum payments for consumers who borrow money with their cards, meaning that no payment smaller than this amount can be processed. Missed payments can result in late fees and increased interest rates.

The New Calculation

Presently, credit-card companies calculate a minimum monthly payment by charging a customer 1 percent of their total account balance in addition to any finance charges and fees that may be applicable. For example, if your total balance is $100 then your minimum monthly payment would be $1 plus finance charges and fees. The total number of fees and finance charges depends upon your total account balance as well as your current interest rate.

The Old Calculation

The former method used to calculate a minimum payment was to simply charge 2 percent of your total balance as the monthly payment. If your total balance was $100, your minimum payment would be $2. This resulted in lower monthly payments than the current calculation method, though it also resulted in it taking longer to pay off the total balance on a credit card.

References

• NCNBlog.com