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Paying higher minimums to decrease loan period
According to a prominent comparison website, with interest rates on credit cards at an 18-month high, many borrowers will find it increasingly hard to clear their debts. The average increase in interest rates has reached 19.1 per cent and only a handful of lenders are currently cutting their minimum monthly repayments.
The additional amount paid back by a customer with a balance of £2,000 at an interest rate of 19.1 per cent
Allowing borrowers to pay back just 1 per cent means that a customer with a £2,000 balance accruing interest at a rate of 19.1 per cent would take 24 years and two months to pay back their debt. At one per cent the card holder would be charged £2,744 in interest. At 2 per cent the customer would be able to clear their balance in around seven years and a half years by paying £1,162 in interest. By doing this it reduces the time it takes to repay a £2,000 balance from 24 years to ten years and ten months
With minimum payments previously at upwards of 2 per cent, Lloyds, RBS and Santander request that borrowers pay just one per cent of their balance. There are new rules in place that require minimum repayments should cover the interest as well as any additional fees. The idea is that this will enable borrowers to pay at least some of the outstanding balance. Others, such as MBNA and Nationwide have reduced minimum repayments to 1 per cent and increased the minimum cash payment amount from £5 to £25.
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