How_Money_Works_-_The_Facts_Visually_Explained

Credit cards

Minimum

repayments

Unlike loan and mortgage

borrowers, credit card users

can choose how much over and

above the prescribed minimum

repayment they repay each month.

The minimum repayment is the

lowest amount users must repay

each month in order to avoid a

fine. If they pay only the minimum

amount each month, however,

the remaining unpaid balance will

continue to accrue interest, and

the amount they owe will increase.

This means that their debt will last

for longer than it would do if

they were to repay a larger, fixed

amount each month, or if they

paid off all of the monthly balance.

A credit card account allows an individual to make

purchases on credit up to an agreed maximum limit.

Users can spend as much as they want up to that limit

without being charged – as long as they pay off the

balance (accrued debt) in full by an agreed date each

month. Interest is charged on any outstanding balance

beyond this point, but users are obliged to meet only

a minimum repayment (see below). The minimum

amount may vary, but generally users pay a percentage

of the remaining balance or a fixed minimum amount,

whichever of the two is higher, plus the interest and

any default charges.

There is not usually a deadline by which a credit

card debt must be repaid in full – it is up to the users

to make repayments as they see fit – but repaying only

the credit card’s minimum payment each month is one

of the most expensive ways to manage credit card bills,

as interest will build up on the unpaid amount.

Issued by lenders such as banks or building societies, wallet-sized

plastic credit cards function as flexible borrowing facilities which

allow their holders to purchase goods or services on credit.

1 2 3 4 5 6 7 8 9 10 11 12 13

REMAINING BALANCE (£)

£2,500

£2,000

£1,50 0

£1,000

£500

0

FIXED REPAYMENTS

MINIMUM REPAYMENTS

BILL PAID

INTEREST

£

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