Minimum Payment Warning

david_hellier

It was mentioned on the news a couple of weeks ago that some credit card companies are thinking of reducing the minimum payment level from the industry norm of 3% to a lower one of say 2.5% (or somewhere in between). This will have a serious effect on one's ability to realistically pay the card off.

For example, if you were to borrow £1000 cash today from Tesco at 1.873% per month it would currently take you 216 months (18 years) to pay off and you would pay interest of £1552 on top of the £1000, based on a 3% min repayment.

If, for example they made the minimum repayment 2.5% per month this would take 338 months (28 years 2 months) to pay off and you would pay £2672 in interest.

Therefore it is in your interests to pay a fixed amount each month rather than the minimum payment.

As usual, here is the 3% table:

Monthly Credit Card Rates and Time Taken to

Payoff £$€1000* and the Interest paid

Monthly% APR% Time Interest
1 12.68 11y 1m 490.93
1.1 14.03 11y 6m 544.93
1.2 15.38 12y 1m 627.18
1.3 16.76 12y 8m 718.86
1.4 18.15 13y 4m 821.88
1.5 19.56 14y 1m 938.45
1.6 20.98 15y 0m 1071.47
1.7 22.42 15y 11m 1224.44
1.8 23.87 17y 1m 1402.70
1.9 25.34 18y 5m 1612.80
2 26.82 20y 0m 1864.30
2.1 28.32 21y 11m 2170.94
2.2 29.84 24y 3m 2553.00
2.3 31.37 27y 4m 3043.14
2.4 32.92 31y 3m 3693.72
2.5 34.48 36y 10m 4602.18
2.6 36.07 45y 0m 5959.51
2.7 37.67 58y 6m 8211.90
2.8 39.29 85y 3m 12699.05
2.9 40.92 164y 5m 26099.39

*Assumes minimum payment of the higher of £$€5 or 3% per month