8 Pros and cons of selecting Minimum Monthly Repayment

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.
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