What is a minimum charge fee?

The concept of a minimum finance charge is an important aspect of credit card usage that cardholders should be aware of. This fee is levied by credit card issuers in situations where the interest due on a cardholder's outstanding balance for a given month falls below a predetermined threshold.

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The purpose of the minimum finance charge is to ensure that credit card companies can recover some costs associated with maintaining the account, even when the interest owed is minimal. It acts as a safeguard against cardholders who might otherwise avoid paying any fees by carrying only small balances.

The amount of the minimum finance charge can vary between credit card issuers, but it is typically set at a relatively low level. In many cases, the charge is $1 or less, with some companies imposing a charge as low as 50 cents.

It's important to note that the minimum finance charge only applies when a borrower carries a very small balance. If the interest due on the outstanding balance exceeds the threshold set by the credit card issuer, the cardholder will be responsible for paying the full amount of interest due, rather than the minimum finance charge.