What is a Minimum Finance Charge?
A minimum finance charge usually refers a minimum charge, imposed by a credit card company, on any balance that remains unpaid on a credit card. Standard rates for a minimum finance charge vary depending upon one’s credit card, but usually cost between a quarter to half of a US dollar (USD). Usually the minimum finance charge only applies when the interest charge is less than the minimum charge. If you carry a one dollar balance on a credit card, the credit card company may impose the minimum finance charge. In this case, if your minimum finance charge is .50 USD, you are actually paying 50% interest on that one dollar owed. That’s a huge interest rate. However if you owed 100 USD on your credit card, the company will assess one twelfth of your yearly interest rate, since it will exceed the minimum finance charge. For example, a 12% yearly interest rate on 100 dollars would be 1% monthly for the total. On 100 dollars you would pay one USD instead of the .50 USD minimum finance charge.
During the promotional period, if you trigger finance charges because of late payment or whatever, then the finance charge is the rate in affect applied to applicable balances or $2.00, whichever is greater. The issuer really is happy to carry your balance because it lowers the cost of getting you as a customer. They are also betting that many people will violate one of the conditions for maintaining the rate. Sooner or later the bank will make money on you as a customer. Read the conditions and beware of fine print.
Some credit cards have a minimum finance charge. Youll be charged the minimum amount even if the actual amount of your finance charge should be less. For example, suppose you miss a payment of $5 and your finance charge should be around 1. Since the companys minimum finance charge is $1.00, youll have to pay the minimum – $1.00. Thats 99 out of your pocket! A minimum finance charge only kicks in when you actually must pay a finance charge. If your finance charge is zero, then the minimum does not apply. Finance charges must be listed on your monthly statements as the total dollar amount you must pay for the use of the card. Remember, you can avoid finance charges altogether by paying your balance in full every month. See also: What are the finance charges? How are they calculated? What is a grace period?
