The minimum repayment on credit cards with revolving credit lines is decreasing: More and more banks are reducing the repayments required. For many card products, borrowers have to repay only 2.0 percent of the outstanding balance every month. This initially reduces the rate load. However, in the long run, bank customers will have to reckon with higher costs for this financing option. see http://freedomtoons.org for further notes
Revolving cards are still relatively underrepresented in the German market.
The price policy of most banks aims to make money with high nominal interest rates, annual effective interest rates beyond 15 percent are not uncommon. For that the banks waive account fees.
A high borrowing rate in combination with a low minimum repayment predetermines borrowers to permanent borrowers. With a credit card balance of 3,000 euros and an effective interest rate of 16 percent, the total debt is reduced by 12 monthly installments of 60 euros each by less than 300 euros. Even if the credit card is not used for new purchases for a year, and even paid slightly more than the minimum rate, the debt load is slipping at a snail’s pace.
Credit cards with installment payment functions are particularly suitable for bank customers who are confident in their spending discipline and can repay the loan taken out relatively quickly. Those who do not get far beyond the minimum rate pay for a long time. In the above constellation, it would take more than 78 months for the credit card account to be balanced.
Frequently, repayment can be significantly accelerated by rescheduling without having to shoulder higher monthly burdens. With an effective interest rate of 8 percent, the loan with the same monthly installment is already fully repaid after just over 60 months and thus a year and a half earlier. Those willing to increase the monthly rate by 15.00 Euro to 75.00 Euro can be debt-free even after less than four years.
Undoubtedly, revolving cards have advantages: apart from the lump-sum interest rates, they are often very cost-effective. In addition, cardholders benefit from purchases of interest-free payment terms of up to two months. The partial payment is always available and can be used spontaneously and without consultation. In the long term, bank customers with a tight budget or a lack of spending discipline threaten the debt trap.