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Term: Minimum Finance Charge

10 Feb 2015

DEFINITION OF ‘MINIMUM FINANCE CHARGE’
The least amount of interest you’ll have to pay your credit card company in a particular billing cycle when you carry a balance. The minimum finance charge, also called the minimum interest charge, is generally a nominal amount, such as $1.00. It usually won’t differ significantly from what your calculated finance charge would have been if the minimum didn’t apply. It’s also rare that a customer would carry a balance so small that an interest charge of $1.00 or less would apply.

INVESTOPEDIA EXPLAINS ‘MINIMUM FINANCE CHARGE’
Some cards do not have any minimum finance charge. To find out whether a credit card has a minimum finance charge and if so, how much it is, read the credit card disclosures — also called the pricing and terms — which are available even before you apply for the card. You can find this document on-line on the page where you apply for the card.

If you never carry a balance, you’ll never have to worry about paying a minimum finance charge. You’ll also get a grace period, an interest-free period between the date you charge each good or service to your credit card and your credit card bill’s due date.

Another situation where you won’t incur a minimum finance charge is if you’ve qualified for a 0% introductory APR offer. As long as you continue to meet the conditions for the 0% interest rate — which typically means making at least the minimum payment on time each month — there will be no minimum finance charge or any other finance charge.

If you do carry a balance and have to pay finance charges, make sure you understand how they are calculated. The credit card disclosures will also contain this information. For example, they might state that the credit card company uses the daily balance method, including current transactions. You’ll then want to understand how your daily balance is determined and what your daily periodic rate is, which is your APR divided by 365.

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