What Is the Minimum Payment on a Credit Card UK?

Credit cards in the UK offer a flexible line of credit. A common feature is the minimum payment, the smallest amount a cardholder must repay each billing cycle. Understanding this payment mechanism is important for managing credit effectively and avoiding potential financial pitfalls.

What is a Credit Card Minimum Payment

A credit card minimum payment is the lowest amount a cardholder must pay towards their outstanding balance each month. This amount is set by the credit card provider to ensure regular debt repayment. Making at least the minimum payment helps maintain the account in good standing and avoids additional penalties.

Cardholders can find their minimum payment on their monthly statement, typically marked alongside the total balance and due date. Most credit card providers also offer online banking portals to view these details.

How Minimum Payments are Calculated

A credit card’s minimum payment calculation typically combines a percentage of the outstanding balance and accrued interest. Common percentages range from 1% to 3% of the total owed, varying by provider. For example, some lenders might set it at 2.5% of the balance plus interest and fees.

Any fees incurred, such as annual or late payment fees, are also added. Many credit card agreements include a fixed minimum amount, such as £5 or £10. The final minimum payment is the higher of the calculated percentage-based amount (plus interest and fees) or this fixed minimum.

For instance, if a cardholder has a £2,000 balance and the minimum payment is 2.5% plus interest, their payment would be at least £50 plus the interest charge. If 2.5% of the balance falls below the fixed minimum, £5 would be the required payment. This structure ensures that even small balances require a modest repayment each month.

Financial Impact of Paying Only the Minimum

Consistently paying only the minimum on a credit card has substantial financial consequences. It greatly extends the time to repay the full balance. A £2,000 debt with a 20-25% Annual Percentage Rate (APR) could take 28 to 35 years to clear if only minimum payments are made, significantly increasing total interest paid.

For example, a £3,000 balance at a 24% APR could incur over £5,000 in interest if only minimum payments are consistently made. This results in a total repayment figure that is significantly higher than the initial amount borrowed.

The UK’s Financial Conduct Authority (FCA) introduced “persistent debt” rules. A customer is in persistent debt if, over an 18-month period, they pay more in interest and charges than they repay of the borrowed amount. Providers must then contact the customer, encouraging them to increase payments. If persistent debt continues for 36 months, the provider must offer options to help the customer repay the balance within a reasonable timeframe, typically three to four years, and may suspend the card as a last resort.

What Happens When You Miss a Minimum Payment

Missing a minimum payment by the due date in the UK triggers immediate and long-term consequences. The most direct result is typically a late payment fee, commonly around £12 per missed payment. These fees can quickly accumulate, adding to the outstanding balance.

Missing a payment also negatively impacts the cardholder’s credit score, as payment history is a significant factor in credit assessments. A single late payment can remain on a credit report for up to six years, making future credit more challenging or expensive to obtain. Cardholders might also lose promotional interest rates, reverting to a higher standard rate on their balance.

If missed payments continue, the account could eventually default, leading to more severe collection actions. This could include the debt being passed to a collection agency, further damaging the credit score and potentially leading to legal proceedings. Addressing missed payments promptly by contacting the lender is advisable to mitigate these consequences.