Vision Credit Education, Inc.

Definition

A minimum payment is a specified amount of money that must be paid by a debtor prior to a certain due date.

Analysis

Minimum payments are a feature of revolving accounts, such as credit cards. Lenders require that a specified minimum payment be made each billing cycle in order to keep the account in good standing.

The amount of the minimum payment varies depending on the creditor, the type of account, the status of the account, the amount of debt owed and on the debtor’s credit history. The minimum payment may also depend on external factors, such as market conditions or government regulations.

Credit card issuers have some flexibility in calculating minimum payments. For example, Sears has historically allowed for any amount paid above the minimum payment for one month to reduce the following month’s required minimum payment. Even after Citibank purchased the Sears credit card portfolio, this feature remained on many of these accounts.

Other creditors strictly follow guidelines established by the Office of the Comptroller of the Currency (OCC). The most common calculation is as follows:

As interest rates fluctuate, the minimum payment can similarly fluctuate. Additionally, any missed payments or balance transfer fees could become immediately due before the next due date.