Minimum Finance Charge: An Overview

A minimum finance charge is a monthly credit card fee that a consumer may be charged if the accrued balance on the card is so low that an interest charge under the minimum would otherwise be owed for that billing cycle.

Most credit cards have a minimum finance charge of $1. Thus, the minimum finance charge only kicks in when a borrower carries a very small outstanding balance.

Minimum Finance Charge Explained

The minimum finance charge is, quite literally, the least of a credit card user's concerns. A credit card may come with any or all of the following fees: an annual fee, fees for late payments, balance transfer fees, over-limit fees, cash advance fees, and foreign transaction fees.

Key Takeaways

  • The monthly minimum finance charge is usually $1.
  • It is seldom charged because credit card users who carry a balance usually owe more than the minimum, and often much more.
  • The credit card user's agreement will detail all of the charges that will be imposed on its use.

With the exception of an annual fee, all of the above fees are charged at per-usage rates established by the company. Therefore, no minimum charge is imposed.

And, of course, there are finance charges on the balance due on the card. As of mid-2020, interest rates on credit card balances range from 13.99% to 25.99%. The average is about 19% for a new offer. The rate a new customer is charged is based on the person's credit history and might be increased later for any of various reasons (although the new rate can be charged only to balances on new purchases, not outstanding balances.)

Read the User's Agreement

Not all companies charge all of the fees listed above. However, if a company boasts in its advertising about its lack of one fee, such as an annual fee, look closer. The loss may be offset by other fees.

The minimum finance charge and all other fees and charges will be detailed in the consumer's credit agreement.

Borrowers who don't carry a balance from month to month on their credit cards don't have to worry about finance charges. However, most borrowers carry a balance, at least some of the time, and should closely follow the charges that they are incurring.

Other fees credit card users pay can include an annual fee, fees for late payments, balance transfer fees, over-limit fees, cash advance fees, and foreign transaction fees.

The minimum finance charge is usually irrelevant, as the charges will almost always exceed the minimum.

Example of Interest Fee Hit

For example, consider a credit card user who pays a 20% annual interest rate. If the charges are calculated monthly, the monthly rate would be 1.67%. This borrower would pay more than the monthly $1 minimum fee if the balance was $60 or more at the end of the monthly billing cycle.

Although most cards have a monthly minimum finance charge, cards offered with an introductory rate often waive this fee until the introductory rate expires.