A minimum payment can be quite simply defined as the least amount you need to pay to the creditor to avoid paying late fees. While this seems to ease off the financial burden a bit, there are implications to this rule. Even if you do not pay the outstanding amount for a month to avoid late fees, you still pay interest on the balance amount.
So, credit card minimum payment cannot be a permanent solution. Furthermore, you must account for the sudden expenditures that you cannot account for beforehand. Therefore, using the credit card minimum payment indiscriminately can add up to your loan amount.
There are different ways in which this minimum payment is calculated, and there are ways to find out which method your lender employs. Make sure that the APR (Annual Percentage Rate) is not enormous enough to frustrate credit card usage.
Moreover, missing the minimum payment can have adverse implications on your credit score. The minimum payment is by no means a constant amount, and may increase owing to factors like a missed due date.
Your credit card loan interest rate also increases with regular use of the minimum payment facility. Let us now look at the details of the credit card minimum payment feature, so that you can form your opinion on the same.
How is the Minimum Payment Calculation Made
There are two ways in which this calculation is made:
- By combining the balance percentage and the finance charges (APR)
- By balance percentage only
Let us consider the first case scenario. Suppose you need to pay 1% of your outstanding balance plus an APR of 24%. If your outstanding balance is 1000 INR, you need to pay 1% of it, i.e. 10 INR, plus 2% of the amount (20 INR) as finance charges (monthly). So your minimum payment is 30 INR per month. However, in the second case, the minimum payment will be higher because a flat rate of up to 5% is imposed on the outstanding balance.
How to Know the Calculation Method of the Lender
You can easily find out about the process of calculation by reading the terms of agreement drawn by the lender. Sometimes, lender entities make calculations using both methods, and they impose the one with a higher yield. However, there are cases in which you cannot make the minimum payment. Let us take a closer look to better understand this scenario.
- If your account is charged off, you can no longer make credit card minimum payments. This happens precisely because you are not allowed to make a monthly payment. In such cases, your outstanding amount becomes equivalent to your minimum payment. Typically, debt is “charged-off” when the lender does not consider the debt as a performing asset.
- Furthermore, if you have a charge card instead of a credit card, you will not be allowed to make monthly payments. The privilege of carrying forward the balance amount only exists with credit cards.
- Finally, if your total balance falls under a certain limit, it becomes your minimum payment. This rule is understandable because the amount cannot be further broken up into part payments.
You must remember that a charge-off is not akin to a write-off. Thus, even if the lender does not consider your debt as an asset, you still need to pay the outstanding amount.
When Does Minimum Payment Increase
Your total balance might increase by means of cumulative amounts accumulated as interests over outstanding monthly balances. Consequently, this causes an increase in the minimum balance. The following are the other ways in which this increase might happen.
- Making late payments can cause an increase in the overall balance due to late fees. This increase automatically has an aggravating effect on the minimum payment. The loan period may also increase due to the increase in the total unpaid amount.
- When you have borrowed in excess of the credit amount approved on your card, your minimum payment amount increases considerably.
- The APR or the interest rate charged by the bank might increase over your loan period, causing an increase in minimum payment.
- The balance percentage might be increased by the lender as a part of their policy. It might even do so in your case especially if it thinks that the debt poses a risk. Either way, the minimum payment increases.
How to Make your Minimum Payment
You can always make your payment by visiting the lender’s office or issuing a money order. However, it is better to schedule electronic payments. Not only does this payment system save time, but it also notifies you about your due date.
To sum up, you must always be careful in calculating the money you owe as a bajaj credit card loan interest rate. Minimum payments should only be made in case of emergencies. Indiscriminate use of the facility can increase the loan period and pile up the outstanding amount.