Minimum payment

A card agreement sets the minimum as a formula. A common shape is a percentage of the balance, such as 2% or 3%, or a floor such as $25 when the percentage comes to less than that; some issuers state it as 1% of the balance plus the month's interest and fees instead. The statement prints the figure as the minimum due, with a due date. On an installment loan, such as an auto loan or a student loan, the minimum is the scheduled payment the lender set when the loan was written, and it does not change with the balance.

The month's interest is the balance times the monthly rate, and it is charged whatever is paid. The minimum includes that interest, so the part of it that reaches the balance is the minimum less the interest.

Since the Credit CARD Act of 2009, a card statement carries a minimum payment warning: how many years the balance takes to pay off at the minimum alone, and what that costs, beside the monthly amount that clears it in three years.

A credit card carries a $6,000 balance at a 21% APR, and its agreement sets the minimum at 3% of the balance. The monthly rate is 21% divided by 12, or 1.75%, so the month's interest is $105. The minimum is 3% of $6,000, or $180. Of the $180, $105 covers the interest and $75 reaches the balance, which ends the month at $5,925. Nothing new is charged, and the interest is charged on the month's opening balance; the figures are this example's arithmetic.

The next month's minimum is worked from the smaller balance: 3% of $5,925 is $177.75, and $103.69 of it is interest. Both the minimum and the amount reaching the balance shrink a little each month.

Balance

$6,000

Minimum, 3% of $6,000

$180

Interest, 1.75% of $6,000

− $105

To the balance

$75

The minimum decides the least the balance can fall in a month. In the example, $75 of a $180 minimum reaches the balance, so a payoff at the minimum alone runs for years, and the balance falls more slowly as the minimum shrinks with it. Any amount above the minimum reaches the balance whole, since the month's interest is already covered.

The gap between the minimum's percentage and the monthly rate is what moves the balance. At 3% and 1.75%, 1.25% of the balance is retired each month. A minimum set at or below the month's interest leaves the balance where it was, or larger.

When several debts are paid from one monthly amount, the minimums come out first and the rest is the surplus that a payoff order directs. A monthly amount below the minimums added together does not fund the debts as agreed.

On the Debt page a debt carries its minimum. The “Track a debt” drawer's Terms section takes it as “Minimum payment ($)”, with the hint “The payoff plan falls back to your budgeted payment when blank.” The debt's drawer reads the figure in the caption under the balance, as in “22.74% APR · $121/mo minimum”, and holds it in a “Minimum” row under Details. The rail adds the minimums up as “Minimum monthly payment” beside “Monthly payments”, what the plan pays, for the payoff plan or for all debts as the scope toggle is set.

A debt's row shows its planned monthly payment, “/mo”. In the payoff readout's “As planned” view each debt is paid its own planned payment, its minimum when none is planned, and the readout's working splits the month into “Minimums”, “Surplus” and the “Monthly” total. A “Monthly budget” below the minimums added together projects nothing; the page says so, with a “Set budget to” button that raises the budget to that sum. In the “Debt payoff” calculator, “This month's payments” lists where the month's money goes.