Definition of minimum financial charges

Minimum financing costs: an overview

A minimum finance charge is a monthly credit card fee that a consumer may be charged if the accumulated balance on the card is so low that less than the minimum interest would otherwise be due for that billing cycle.

Most credit cards have a minimum finance charge of $ 1. Thus, the minimum finance charges only apply when a borrower has a very small outstanding balance.

Minimum financing costs explained

Minimum finance charges are, literally, the least of a credit card user’s concern. A credit card may have some or all of the following fees: annual fees, late payment fees, balance transfer fees, over-limit fees, cash advance fees, and fees transaction abroad.

With the exception of the annual fee, all of the above fees are billed at the usage rates established by the company. Therefore, no minimum royalty is imposed.

And, of course, there is a finance charge on the balance owed on the card. In mid-2020, interest rates on credit card balances ranged from 13.99% to 25.99%. The average is around 19% for a new offer. The rate charged to a new customer is based on the person’s credit history and may be increased later for a variety of reasons (although the new rate can only be charged on new purchase balances, not on overdue balances. )

Read the user agreement

Not all companies charge all of the fees listed above. However, if a business boasts in its advertising that there is no royalty, such as an annual royalty, take a closer look. The loss can be compensated by other costs.

The minimum finance charge and all other fees and charges will be detailed in the consumer’s credit agreement.

Borrowers who don’t carry a month-to-month balance on their credit cards don’t have to worry about finance charges. However, most borrowers carry a balance, at least part of the time, and must closely monitor the fees they incur.

The minimum finance charge is usually irrelevant, as the charge will almost always exceed the minimum.

Example of impact on interest charges

For example, consider a credit card user who pays an annual interest rate of 20%. If the fees are calculated monthly, the monthly rate would be 1.67%. This borrower would pay more than the minimum monthly fee of $ 1 if the balance was $ 60 or more at the end of the monthly billing cycle.

While most cards have a minimum monthly finance charge, cards offered with an introductory rate often waive these fees until the introductory rate expires.