Two banks are offering you a low three-percent minimum monthly repayment on your credit card to make credit more accessible and to earn more interest for the banks.
Standard Bank has lowered the minimum repayment due on your credit card from five percent to three percent of your outstanding balance. Absa reduced the minimum repayment to three percent in 2007.
While this may put extra cash in your pocket in the short term, a higher outstanding balance will attract more interest in the long run. Ideally, you should manage your credit card debt so that you can pay the full outstanding balance due each month and avoid attracting any interest.
The lower minimum repayment will not free up that much cash. For example, if you have an outstanding credit card balance of R10 000, the minimum repayment is now R300 (three percent) from R500 (five percent) before.
Arrie Rautenbach, the managing executive of Absa’s card division, says the economic climate has played a role in the bank’s decision to lower the minimum repayment due on its credit cards.
In previous years, the minimum payment on an Absa credit card was 10 percent of the outstanding balance. This was then lowered to 7.5 percent, then to five percent in the course of 2005, and then to three percent during 2007.
“In addition to the normal three-percent repayment option, we also offer arrangements for our delinquent customers up to 60 months, which works out to less than three percent. Although the customer’s credit limits are reduced for the duration of the repayment arrangement, there is a possibility of credit being re-issued if a percentage of the balance is repaid,” Rautenbach says.
“Lowering the required repayment has had a significant impact on consumers’ ability to make the required monthly payments. This also gives them the opportunity to manage their finances in such a way that they are able to make use of the credit still provided, knowing that the monthly percentage required for payment is adequate and reasonable,” Rautenbach says.
The payment options available to Absa credit card holders are:
* A minimum payment of three percent or R25, whichever is greater;
* A fixed repayment amount; or
* Payment of the full outstanding balance.
Rautenbach says evidence suggests that customers are experiencing financial strain.
“However, the number of accounts in good order moving to accounts that are one month in arrears has decreased consistently over the past four months. This is an indication that our customers are finding it easier to meet their monthly credit card repayments,” he says.
Leila Fourie, the director of Standard Bank’s card division, says an improvement in clients’ credit profiles has allowed the bank to make changes to the amount of risk it is willing to take, thus increasing the availability of credit to credit card holders and stimulating consumer demand.
“The introduction of a three-percent minimum repayment will assist those customers that are distressed and in arrears. This will allow distressed customers who are paying less than five percent a month as part of a restructure arrangement to improve their credit profile. It is important to note that you have the option to pay more than the minimum, and we encourage you to pay off as much of your debt as possible,” Fourie says.
However, another of the big banks, First National Bank (FNB), says it has found that reducing the minimum monthly instalment due in bad times merely increases the level of debt without helping consumers with their cash flow.
Lowering the minimum monthly instalment delays the impact of bad debt on the bank, but later on the bad debt is experienced at higher levels, Darryl Lahner, FNB’s head of credit risk, says.
The minimum monthly repayment due on an FNB credit card is five percent.
“Ten percent of our clients are transacting from a positive balance, and credit card clients are showing very low levels of missed payments compared with the past five years,” he says.
Nedbank also has no plans to reduce its minimum monthly payment from five percent.