What does minimum payment mean for credit card

The minimum monthly payment is the lowest amount a customer can pay on their revolving credit account per month to remain in good standing with the credit card company. Making the monthly minimum payment on time is the least a consumer needs to do to avoid late fees and to have a good repayment history on their credit report. The amount of the minimum monthly payment is calculated as a small percentage of the consumer's total credit balance.

Key Takeaways

  • The minimum monthly payment is the least amount of money a borrower can pay on a revolving credit account each month and still remain in good standing with a credit card company.
  • Consumers who pay only the minimum monthly payments will end up taking longer to pay off their balances and will pay higher interest expenses compared to consumers who pay more than the minimum.
  • Revolving credit accounts allow consumers to keep the accounts open for life as long as they remain in good standing with no delinquencies.
  • Non-revolving credit accounts set a payment schedule for the borrower at the time of loan approval. The payment schedule is static and usually does not change over the life of the loan. With non-revolving credit, the borrower receives a one-time lump sum payout with a specified repayment period. The borrower must make monthly payments for the duration of the loan with the account being closed after full repayment has been made.

    However, there is a huge possibility that most of these users will overspend their credit cards, which is a risk. If you fall short of funds, most credit cards offer you the option of paying only the minimum amount due. This amount is much lower than the total bill and helps decrease your debt. However, paying up only the minimum amount consistently can land you in a debt trap.

    What is the minimum amount due on a Credit Card?


    “The minimum amount due on a credit card is the minimum amount you are required to pay, on or before the payment due date, to ensure that you do not have to pay late fees.” By calculating a minimum amount, the bank ensures you can repay a portion of the principal outstanding every month.

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    What does minimum payment mean for credit card

    What does minimum payment mean for credit card

    How is the minimum amount calculated?


    The minimum amount due is calculated as 5% of your balance outstanding or the sum of all instalments, interest/other bank charges, the amount used over the credit limit and 1% of the remaining balance outstanding, whichever is higher. It will also add any unpaid minimum amount due from previous statements to your current minimum amount and arrive at the total minimum amount due. Nowadays mobile banking app are made it easy to get statements in detail to pay the amount due without any confusion.

    Let us understand this using an example. Assume that the annual percentage rate (APR) is 3% per month. The billing date is 18th of every month and the payment due date is 6th of the following month.

    Date of transaction

    Type of transaction

    Transaction amount

    19 March

    Purchase

    ₹500

    No interest is charged

    31 March

    Purchase

    ₹500

    No interest is charged

    18 April

    Statement is generated

    ₹1000

    The total amount due on 6 May is ₹1000. The minimum amount due is ₹50.

    5 May

    Payment

    ₹50

    You paid the minimum amount due, which is ₹50. The rest of the amount will incur interest.

    16 May

    Purchase

    ₹1000

    This amount will also incur interest.

    18 May

    Interest

    ₹30 + ₹28.5 = ₹58.5

    This interest will be added to your next bill.

    18 May

    Statement is generated

    ₹58.5 + ₹950 + ₹1000 = ₹2008.5*

    This is the total amount you will need to pay on or before 6 June. The minimum amount due will be ₹100.42.


    *This amount can vary depending on other charges.

    The minimum amount due for a particular month is communicated to you through monthly statements and SMS alerts.

    What happens if you only pay the minimum amount due?


    Paying the minimum amount due on a credit card sounds comfortable. Despite having a huge credit card bill, the minimum amount gives you the impression that your debt is sustainable. However, you must realise that paying only the minimum amount every month results in your debt stretching over years, with eventual interest payment on your outstanding balance.

    Credit card usage is growing in India because of the interest-free credit of 45 days, ease of doing transactions, discounts, cashback offers, and the digital push by the government.

    What happens if you do not make any payments before the due date?


    If you do not make any payments for some time and do not lower your debt, it can get you in serious debt traps. You will end up paying more than you would have to pay if you made timely payments. Here is what the bank will do if you do not make any payments by the due date:

    • Impose late payment fees, interest, and other charges.
    • Possibly suspend your card if you do not make payments regularly.
    • Badly affect your future financial credentials and give you a negative score at CIBIL.

    Should you only pay the minimum amount due?


    All of us run short of our funds sometimes. If you’re stuck in such a scenario, you should at least pay the minimum amount due on a credit card to lower your debt. However, never make it a norm to make payments only for the minimum amount due, since it will only increase your debt.  

    Having an IDFC FIRST Bank credit card ensures you are well prepared when you need to pay your bills. The bank does not deliver the credit card statement at the last minute, giving you ample time to pay the sum due. IDFC FIRST Bank’s credit cards also attract the lowest interest rates on credit cards in India. Additionally, there is no joining fee or annual maintenance charges, which helps increase savings. If you wish to know more about the IDFC FIRST Bank credit card benefits, head over to their website, where you will find all the relevant information. Click here to Apply now for an IDFC FIRST Bank Credit Card or call the Customer Service on 1800 10 888 for help you with a quick application process.

    Disclaimer

    The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.

    What happens if I only pay the minimum payment on my credit card?

    If you pay the credit card minimum payment, you won't have to pay a late fee. But you'll still have to pay interest on the balance you didn't pay. And credit card interest rates run high: According to December 2020 data from CreditCards.com, the national average credit card APR was 16.05%.

    Does paying minimum balance hurt credit?

    No, making just the minimum payment on a credit card does not hurt your credit score, at least not directly. It actually does the opposite. Every time you make at least the minimum credit card payment by the due date, positive information is reported to credit bureaus.

    Is it okay to pay minimum due on credit card?

    Yes, you can keep your credit card active by paying just the Minimum Amount Due every month. But, you will have to pay high interest charges and also, there will be no interest free credit period. Just remember that the less you pay of the outstanding amount, you will be made to pay more in interest.

    What happens if I only pay the minimum payment on my credit card SBI?

    Whereas, if you pay the minimum amount due, you will carry forward a balance. This facility is known as revolving credit and will attract interest. Any subsequent purchase made on the card will also attract interest from the date of purchase.