8 Pros and cons of selecting Minimum Monthly Repaymentby Ben Stokes Freelance Blogger
If you are among those who used to purchase through credit card frequently and at the end of the month get long bills, you must have heard about minimum monthly payment. Well, the minimum monthly payment concept is not at all a new thing for credit card users. But if you took the credit card just a few days back, you need to know about it.
To avoid extended bill payments and reduce the number of loan defaulters, almost every credit card company used to comfort cardholders to pay the minimum amount. Now for many cardholders, it has become practice due to which a credit card company makes no loss. Instead, they can earn more than the projected amount.
On the other hand, a cardholder needs to pay the extra amount he borrowed from the credit card company. This is because paying the minimum amount every month adds more interest upon the borrowed amount. For this reason, many finance experts used to criticize this particular repayment method.
Before we start a discussion about its pros and cons, let us know more about such a payment method.
What is minimum monthly repayment?
To keep the credit score steady and saving oneself from being a defaulter, many cardholders used to pay the minimum amount of money, noted by the credit card company. It is known as the minimum monthly payment. A person who borrows from a credit card needs to repay the money month on month. Generally, every month the cardholder requires to pay a uniform amount.
But there are two options available for repayment of the credit card. Either you may pay the entire outstanding amount, or you may proceed with the only minimum payment. However, there is no reason to think that a cardholder can pay as per his wish. Instead, the money lending company also sets the minimum amount.
You must remember one thing while selecting minimum payment, i.e. a cardholder needs to pay the high interest rate. For instance, if the entire interest rate is only 5%, then due to minimum payment, a person needs to repay a minimum of 2% - 3% of interest monthly. So, it is better to borrow loans from those lenders who sanction with no credit check and no guarantor and repay the entire debt.
Process of Minimum Monthly Repayment
As mentioned, the credit card companies used to suggest an amount which is especially for those cardholders who used to pay minimal money. However, before shifting from normal payment to minimum payment, the card holding company used to sign a digital copy as acknowledgment. It will contain all those factors that are important for a cardholder.
Whenever you turn the monthly repayment from normal to minimal, then the rate of interest starts compounding. While you are paying the minimum amount every month, it will portray an image that you cannot repay. As a result, you need to pay more interest to the card holding company.
Moreover, the outstanding amount almost remains the same because the card holding company only curtail the interest amount. One can quickly pay off the debt by minimum monthly repayment until the maximum tenure arrives. However, many people also repay the entire outstanding in one shot by applying for 24-hour loans in Ireland today. It will reduce the chance of extra payment on the credit card.
Advantages of selecting minimum monthly repayment
Indeed, some people consider this process of minimum monthly payment as add an advantage. Some of these advantages include,
· Build a good credit score
Suddenly, if you start to face a financial crisis and your credit card bill has already been generated, there is no other option instead of requesting minimum payment. Due to paying the minimum amount is will not be considered as monthly installments bounce. Instead, one is still paying the debt but lower than it is expected. This is how one can save his credit score from being crashed.
· No chance of penalty or extra charges
Usually, the only purpose of such a payment concept is to save cardholders from becoming defaulters. Moreover, due to the minimum payment amount, one can save himself from paying either penalty or extra charges.
· The minimum amount ultimately repay large outstanding
Repaying a minimum amount of money every month will hardly make you understand that you are repaying a huge amount of debt. Small repayment ultimately offers comfort to the borrower, and without even realizing it, one can quickly repay the loan.
· Better financial management
When a borrower is repaying through the minimum amount of money, it will help a family person better manage. Paying a very low amount of money in the form of repayment, on the one hand, increases your credit limit and, on the other, builds an emergency fund.
· Helps to cope up with other debt
Many people have both credit card debt as well as ongoing debt from money lenders. Therefore, if you want to carry on each repayment properly, then the minimum payment option is the best way to drive out credit card debt.
Disadvantages of selecting minimum monthly repayment
Although it has many advantages, it also contains some disadvantages. These are,
· High rate of interest
When it comes to selecting a minimum payment option, you must remember that you have to pay a high interest rate. This is something completely unbearable.
· Long tenure
When you opt for such a payment option, you need to go for a long payment option. Lengthier payment options sometimes make one feel burdensome.
· Chance of bad credit score
If you think that you can easily save the credit score due to choosing the minimum repayment option, it is entirely wrong. Instead, your credit score will hamper due to the small amount of payment. Therefore, it is better to consolidate debt by applying for small loans from loan agencies in Ireland.
After getting funds from a lender, you may quickly repay the entire credit card outstanding and save the credit score.
Created on Oct 18th 2021 09:41. Viewed 123 times.