Minimum Payments

« Back to Glossary Index

Minimum payments refer to the smallest amount that a borrower is required to pay on their credit card or loan balance each month in order to avoid default.

The minimum payment amount is typically calculated as a percentage of the outstanding balance, often ranging from 1% to 3%, plus any interest and fees due for that period.

While making the minimum payment can help avoid late fees and penalties, it can also result in a longer repayment period and higher overall interest costs.

Borrowers who only make the minimum payment may find it difficult to pay off their debt in a timely manner, as a significant portion of each payment is applied to interest rather than reducing the principal balance.

Therefore, it is generally recommended that borrowers pay more than the minimum payment whenever possible in order to pay off their debt faster and save on interest costs.

« Back to Glossary Index