What Is a Minimum Finance Charge?

A minimum finance charge is a fee that credit card holders may have to pay if the interest that's due on their outstanding balance in any given month falls below a certain amount. Minimum finance charges are often $1, but sometimes as low as 50 cents, so they only kick in when a borrower carries a very small balance.

How Minimum Finance Charges Work

Not every credit card imposes a minimum monthly finance charge. Those that do will list it on the cardholder's statement for that month. Cards that come with a special introductory interest rate, sometimes called a teaser rate, often waive this fee until the introductory period ends.

Minimum Finance Charge Example

As an example, consider a credit card user who pays a 20% annual interest rate on their card's outstanding balance. If the charges are calculat𒁏ed monthly, the monthly rate would be 1.67%. This borrower would have to pay a $1 minimum finance charge only if their balance was $꧂60 or less at the end of the monthly billing cycle.

If their balance was $50, for instance, their regular interest charge would be 84 cents (1.67% times $50). In that case, the card issuer would bump it up to $1, adding an extra 16 cents to the charge.

Minimum F𓃲inance Charge 🦋vs. Minimum Monthly Payment

A minimum finance charge is not the same thing as a 澳洲幸运5官方开奖结果体彩网:minimum monthly payment.

The minimum monthly payment is the smallest amount the cardholder is required to pay the card issuer that month. Otherwise the account will be subject to late fees and possibly considered 澳洲幸运5官方开奖结果体彩网:delinquent. That can have a negative effect on the individual's 澳洲幸运5官方开奖结果体彩网:credit score, making it morꦛe difficult and more costly for them to obtain o🐈ther credit in the future.

Minimum monthly payments are typically calculated as a percentage of thℱe outstanding balance, such as 1% to 4%, but sometimes as flat fees.

Credit card issuers are required to show on your billing statement how long it will take you to pay off your balance if you only make the minimum payment each month (and assuming that you don't charge anything else in the meantime that would increase your balance).

Minimum Finance Charges and Other Fees

Credit cards can come with a long list of different fees, and the minimum finance charge may be, quite literally, the least of a cardholder's concerns.

The most common fees include:

• 澳洲幸运5官方开奖结果体彩网:Annual fees
• 澳洲幸运5官方开奖结果体彩网:Late fees
• 澳洲幸运5官方开奖结果体彩网:Over-limit fees
• 澳洲幸运5官方开奖结果体彩网:Cash advance fees
• 澳洲幸运5官方开奖结果体彩网:Balance transfer fees
• 澳洲幸运5官方开奖结果体彩网:Foreign transaction fees

By shopping around you can often find a credit card that doesn't change certain fees or charges very low ones. For example, cards without annual fees are now relatively common and cards aimed at frequent travelers often make a selling point of having no foreign transaction fees. However, a card with low or no fees in certain categories may simply make it up with higher fees in the others.

And, of course, there are interest, or finance, charges on the balance due on the card. As of July 2023, the median interest rate on the cards in Investopedia's credit card database was 23.99%. Those rates can vary widely based on a card applicant's credit score and other factors. They are also subject to change for any of a variety of reasons (though the new rate can be charged only to balances on new purchases, not outstanding balances, except in certain circumstances).

The minimum finance charge and all other fees and charges will be detailed in the cardholder's 澳洲幸运5官方开奖结果体彩网:credit agreement.

The Bottom Line

The minimum finance charge is a small f🤪ee and often irrelevant for people who run significant balances on their credit cards, as well as those who pay their balance off in full each month. There are many other credit card fees that are worth paying more attention to—and trying to avoid if at all possible.