Minimum payments create higher credit card interest charges, research suggests - Credit cards - News - Moneyfacts

News

Moneyfacts.co.uk News brings you the latest financial & economic news & reviews of the best products in the UK by our team of money experts.

Minimum payments create higher credit card interest charges, research suggests

Minimum payments create higher credit card interest charges, research suggests

Category: Credit cards

Updated: 31/10/2008
First Published: 09/10/2008

MONEYFACTS ARCHIVE
This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Credit card holders may be facing higher interest charges as a result of minimum payments, research has found.

A study conducted by the University of Warwick's Dr Neil Stewart revealed that the existence of a minimum payment means many people pay less off their monthly bills than they might otherwise.

In a report due to be published in the Psychological Science journal, the psychology researcher notes that 36 per cent of credit card customers pay off more than the minimum but less than the full balance.

As a result, stated Dr Stewart, these customers are facing higher charges than if they paid off the full amount.

"Minimum payments distort the behaviour of many customers in a way that increases interest charges and increases the duration of their debt," he said, although he noted that minimums are beneficial for those customers that might otherwise not pay anything at all.

Last month research by Abbey found that Britons planning to holiday in the sun this winter will put £195 of the cost on a credit card.

Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.

Related Articles

Credit card mistakes cost borrowers £948m

At this time of year, many people could be turning to balance transfer credit cards in an attempt to overcome their Christmas debt. However, many of these borrowers could get caught out in the year ahead, and they could end up paying for it.

6 of the best balance transfer credit cards

Does the thought of opening your credit card bills fill you with fear? If so, you're not alone! Christmas may be over, but unfortunately, many people will still be paying for it, after turning to credit to cover the cost of their festive spend.

Get a better credit score for the New Year

A new year means a fresh start, and one of the best things you can do is take a cold, hard look at your finances – particularly when it comes to your credit score.
 
Close