How is the minimum payment calculated?

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by jamir , in category: Banking and Credit , 9 months ago

How is the minimum payment calculated?

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1 answer

by coty.bode , 9 months ago

@jamir 

The calculation of the minimum payment on a loan or credit card bill depends on the terms and conditions set by the lender or credit card issuer. However, there are generally two common methods used to calculate the minimum payment:

  1. Percentage Method: The minimum payment is a certain percentage of the outstanding balance, typically around 2% to 3% of the total balance. For example, if the outstanding balance is $1,000 and the minimum payment is 3%, the minimum payment would be $30.
  2. Fixed Amount Method: The minimum payment is a fixed dollar amount determined by the lender or credit card issuer. This amount is typically a set figure, such as $25 or $35, regardless of the outstanding balance.


It's important to note that paying only the minimum payment each month may result in higher interest charges and a longer repayment period. It is recommended to pay more than the minimum payment if possible to reduce interest costs and pay off the debt faster.