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What Does "Minimum Payment" Really Mean?Knowing the meaning of "minimum payment" can help you determine what type of loan would be best for you. The minimum payment is determined by several factors, all which make a difference in how much you are going to pay from month to month on your credit. Following are the dynamics that determine the minimum payment. 1. What do minimum payments do? Minimum payments allow you to make the smallest payment possible on your credit card without having a penalty attached to your purchases. Minimum payments are applied first towards the interest added onto your purchase. This means that less will go towards your actual money owed. 2. Percentage rate. Most credit companies and lenders will calculate minimum payment by finding the percentage of how much you spend on your credit card each month. This is usually two to four percent of your bill. If 10 dollars is higher than the figured amount, then this will be your automatic minimum payment. 3. Beware of Interest Rates. Lenders and credit card companies have the freedom of deciding how much to charge for the interest rate. Sometimes this is the interest rate plus one percent of the balance. This means that if you have a higher balance, you will be paying more. Other interest rates are a percentage between two and five percent. 4. Balance. After you have paid your credit card or lender for the month, your credit will then carry a balance. This carries over into the next month and helps to determine what the minimum payment will be in relation to the percentage rate. 5. Minimum payment could mean spending more money. If you pay the minimum payment only, each month, it means that your balance will remain high on your credit. As this happens, it may allow for the interest rate to move up, especially if you dont have a fixed interest rate. 6. Use a minimum payment calculator. Before deciding on the credit that you want to apply for, know how much of a minimum payment you can make without going into debt. Once balance on your credit card starts carrying over, it will mean higher minimum payments and more interest payments. 7. Minimum payments will change. Depending on the credit you have, the minimum payment can change from a low percentage or interest rate to a higher one. Know what these are before you choose your credit card company or loan processor. 8. AB865. This is the name of a special chart that can be found at http://www.dfi.ca.gov/AB865.htm. You can use this chart to determine what your minimum payments will be. This also calculates the annual percentage rate and months that you have been paying towards your credit along with the balance on your card. This will then show you the minimum payment due each month. A minimum payment the amount owed to a credit card company or lender who has determined how much you need to pay each month. By having a minimum payment as an option, you dont have to pay off your entire credit card balance. However, it is important to make sure that you know what this means concerning the interest rate and other factors on your credit card. This will allow for you to make the payments without going into debt or owing high interest rates on your credit card. Before investing in credit, know what the minimum payment will be and how much you can afford.
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