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“If you've ever wondered what a minimum repayment is, look no further...”

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Terminology

Credit card terminology can be notoriously difficult to get to grips with. If you’ve ever wondered what a minimum repayment is, look no further as we’re going to address everything you need to know in our comprehensive guide below.

 

“To avoid missing your minimum repayment and being hit with fees, set up a Direct Debit so you don't have to worry about forgetting it...”

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What it means

A minimum repayment, as the name suggests, is the absolute minimum you must pay towards your credit card balance each month. You don’t have to clear the balance of what you’ve spent (although it is good practice) but you must make the minimum repayment every month.

If you don’t, you risk charges being imposed by your lender and you will also incur interest on what you owe. Plus, the missed repayment will damage your credit history. To avoid missing your minimum repayment and being hit with fees, set up a Direct Debit so you don’t have to worry about forgetting it.

How much your minimum repayment will be depends entirely on your lender, but it is typically a certain percentage of your balance. Say if you had spent £1,000 on your credit card, and the minimum repayment was 5%, you would need to pay back at least £50 that month.

But the minimum payment can sometimes be stated as the largest of either a specific cash amount (like £5 or £10), a percentage of your balance, or a percentage of your balance plus interest. This can be quite complicated to get your head around at first, so here’s an example - you may sometimes see the minimum repayment a lender asks for displayed as:

The greater of 2% of the balance plus interest, 3.5% of the balance or £10.

Here, the percentages and £10 minimum are given as an example, as these three figures vary from lender to lender. But, in order to understand what this means, we’ll have to break it down.

The ‘greater of’ part means whichever of the three values is biggest is the one you’ll pay.

2% of balance plus interest means you’ll pay 2% of your entire credit card balance in addition to any interest.

3.5% of balance means you’ll pay this percentage of your existing balance.

£10 (or any cash sum) means this is the amount you’ll pay as a minimum if it’s larger than the other two options.

Looking at the breakdown above, if your minimum payment is given as a ‘greater of’ option, you’ll pay whichever amount is largest. You should be able to find out what your minimum payment is on your paper statement, or on your electronic statement if you receive it online instead. 

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Should I just make the minimum repayment?

Generally speaking, making just the minimum repayment on your credit card each month isn’t a great idea. You should try to clear as much of your balance as possible, as you will save money on interest this way.

Credit card providers charge interest on the remainder of your balance, so the more you’ve paid off each month, the less you have to pay in interest. If you clear your balance in full each month, you generally won’t pay any interest.

If you only pay the minimum off your existing credit card balance each month, the rest of your balance will continue to accrue interest. Even if you stop spending on this credit card, continuing to pay no more than the minimum means it will take you years to clear your balance as the repayment will get less and less each month, and interest continues to accrue.

However, if you continue to spend on your credit card, it will take you even longer to clear the balance if you only make the minimum repayments. You may find that you reach your credit limit pretty quickly if you continue to spend on it but only pay off the minimum.

“Making just the minimum repayment might take some pressure off your finances...”

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Is only making the minimum repayment okay?

Paying off just the minimum might be appropriate in some circumstances. We’ve given you some examples below:

Unexpected costs

There may be one month when an unexpected expense puts a strain on your finances. Perhaps your boiler breaks down or your car needs servicing.

If this happens, you might be stretched to pay off the amount you usually do on your credit card. If you know you’ll be able to pay more next month, plus the interest you’ll accrue, making just the minimum repayment this month might take some pressure off your finances.

If you have other, more expensive debts

If you have other debts that charge a higher interest rate, you might be better off prioritising these and making the minimum repayment on your credit card balance. If you can pay off your more expensive debts first, and then focus on clearing your credit card debt, you may save money in the long-run. But before you do this you should spend some time working out which of your debts has the higher interest rate and which is a priority for you to pay (like your mortgage).

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Things to remember

Credit cards can be really useful to help you spread the cost of certain purchases, but it’s easy to lose control if you’re not clued up on how they work. Remember that you should only make purchases on a credit card that you know you can comfortably afford to pay back.

We’ll leave you with a few tips so you know how to make your credit card work in the most affordable way possible:

- Paying off your entire balance in full each month means you won’t have to pay a penny in interest (except if you use your card to withdraw cash).

- Cash withdrawals will cost you, and the charges can be quite hefty. Your credit history could also be damaged when you do this.

- Making just the minimum repayment each month could leave you in debt for many years, and mean you end up paying a lot on interest. 

Know if you're accepted before you apply with QuickCheck

  • Get credit - up to £1,500
  • QuickCheck won’t affect your credit rating
  • Get a fast response in 60 seconds

34.9% APR Representative (variable)
Intelligent Lending Ltd (Credit Broker). Capital One is the exclusive lender

Check Now