Would you like to give money to the bank? This happens every time you make the minimum payment on your credit card or miss the monthly payment towards this credit.
The interest charged on credit cards is high now. Being variable, they move according to the Bank of Mexico’s reference interest rate, which is now at 11.25%, one of the highest levels in its history.
The economic environment and the monetary policies adopted by the central bank affect the country’s financial outlook, leading to this effect on the interest rates of various products such as credit cards.
The average interest charged by banks for this credit product is around 38.38%, which is around 300 basis points higher than the reported rate at the end of 2021, which stood at 35.48 percent.
While this is an average, the interest charged on credit cards varies depending on the category of plastic: Basic, Classic, Gold, and Platinum; and the banking institution that grants it.
For example, in classic credit cards, which account for 58.5% of the total cards held in the country, with a credit limit between 15,000 and 20,000 pesos, the interest rate increased from 36.2% in 2021 to 41% in 2022.
This increase in credit card interest rates directly affects consumers who frequently use this product as a means of payment and who pay the minimum balance in the account.
According to Benxico data, nearly four out of 10 people with this type of plastic pay the minimum payment or more but don’t pay the total balance in full each month to avoid accruing interest. So these are the people who are paying interest to the bank every month.
With the increase in interest on the card, users who have outstanding balances may find their minimum monthly payments increase, making it even more difficult to pay off the loan in full.
It is currently estimated that more than 19.8 million credit cards are held in Mexico, with a balance of approximately 348,000 million pesos.
“Of these cards, 62.1% correspond to Total customers who cover their debt at the end of the month, for which they do not pay interest, and 37.9% to non-Total customers who carry a loan for which they pay interest to the credit card issuing institution”, according to the recently published study Basic Indicators of Credit Cards prepared by Banksico.
What do they use the credit card for?
In the country, credit cards are mostly used to buy products in installments, either over months with or without interest.
According to the Banksco study, as of December 2021, 51.1% of the balance on cards included in the portfolio was used to make purchases under these programs.
Of the credit balance on these customers’ cards, 29.3% were contracted for months without interest; 21.8% through promotion with a preferential interest rate, and the remaining 48.9% without any promotion.
How does the minimum payment work
The minimum down payment is a percentage of the loan, which varies between 2 to 5% of the total balance, depending on the bank. They exist as an option so that people who, for whatever reason, cannot pay off the total monthly amount of their debt on the card, make a “payment”, a small payment, but which includes interest, With this they can continue to use the card, and prevent the bank from disabling it. Also, they are freed from paying late interest, which is very high, and from having a bad credit history.
Condusef currently has a minimum payment simulator where you can get an idea of how much you would have to pay as interest on an account that only pays the required minimum payment.
The site requires you to enter information about your loan, the type of credit card you have, the interest rate, and the credit limit. All this information can be found in the account statement that the bank has to deliver every month.