How is minimum monthly payment determined?

How is minimum monthly payment determined?

Payment for not generating bbva interest

So our mission in this post is for you to learn what it means, what banks take into account to calculate it, and what consequences you will face if you decide to opt for this payment to cover your plastic balances.

Opting for the Minimum Payment is very attractive, as it is the option that offers you to pay less money at the moment; however, it is also a trap that will cause the balance on your card to snowball. Why? Because of the way it is calculated and applied.

Before deciding whether or not you want to make the minimum payment on your card, you should know that there are two important dates related to your credit. These are the cutoff date and the payment deadline.

And why do we say that the Minimum Payment is a trap? Well, because, as you could see in the practical example, you would be applying a payment of only 150 pesos to your debt and almost 70% would be used to pay interest.

If you make it a habit and keep using your card, you will create the “perfect storm”, since your debt will grow every month and the Minimum Payment will increase until your payment capacity will not allow you to cover even this amount.

How to calculate the monthly payment on a credit card

More information about the CATSee calculation parametersLine of credit ($): Annual interest rate (%) excluding VAT: Annual fee ($) excluding VAT: Minimum payment in: PercentageAmountThe value reported by the entity in the contract, either as a percentage of the outstanding balance, or an informative fixed value.

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The CAT is a standardized measure of the cost of financing, expressed in annual percentage terms which, for information and comparison purposes, incorporates all the costs and expenses inherent in the loans granted by the institutions.

Which is more convenient: a credit card with a lower interest rate but a high annual fee or a card with no fee but a higher interest rate? The Total Annual Percentage Rate[1] (CAT) is a measure created to help answer this question because it can be very complicated to compare and know which credit option is better.

The CAT, like similar measures created in other countries, is an indicator that incorporates in a single figure (percentage to one decimal place) all the relevant costs incurred when taking out a loan. Interest, commissions and repayment terms are standardized on an annual basis in order to make comparisons between different products.

Minimum payment

So our mission in this post is for you to learn what it means, what banks take into account to calculate it, and what consequences you will face if you decide to go for this payment to cover your plastic balances.

Opting for the Minimum Payment is very attractive, as it is the option that offers you to pay less money at the moment; however, it is also a trap that will cause the balance on your card to snowball. Why? Because of the way it is calculated and applied.

Before deciding whether or not you want to make the minimum payment on your card, you should know that there are two important dates related to your credit. These are the cutoff date and the payment deadline.

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And why do we say that the Minimum Payment is a trap? Well, because, as you could see in the practical example, you would be applying a payment of only 150 pesos to your debt and almost 70% would be used to pay interest.

If you make it a habit and keep using your card, you will create the “perfect storm”, since your debt will grow every month and the Minimum Payment will increase until your payment capacity will not allow you to cover even this amount.

Visa Credit Card Minimum Payment

The minimum payment is an option that seeks to facilitate a contribution to your debt, in those situations in which it is not possible for you to make the payment for the month. If you opt for the minimum payment, you keep up to date with your debts, avoid late payments and fees associated with the non-payment of your credit card. Be careful, it is not a perfect solution, because the minimum payment only covers a fraction of the capital (1/36), and the interest, expenses and commissions; reducing your debt in a low proportion.

Therefore, by paying a higher amount than the minimum, you pay your debt in less time, you have more available balance to make new purchases and, above all, you maintain a good behavior in your payments.

Use the minimum payment option only when it is not possible for you to make the payment for the month. Know your payment capacity: take into account your income, calculate your monthly budget and what expenses you can commit to each month. It is convenient that your monthly payments do not exceed 30% of your available income. Avoid over-indebtedness.

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