Minimum Payment Formula?

[Anonymous]

Hello, I'm programming a credit payment simulation and I wanted to figure out how to calculate minimum payments.  I came across this:

http://www.money-zine.com/Calculators/Loan-Calculators/Credit-Card-Payment-Calculator/

It says the formula that the OCC recommends is as follows:

Minimum Payment = Transaction Fees + APR (%) x Outstanding Credit Card Balance + 1% x Outstanding Credit Card Balance

So, for example, I have a Citi card with a 15k balance and a 8.71% APR.  I get:

Min. Payment =  .0871*15000+.01*15000 = 1456.5

Now, I assume this should be divided by 12 months to get a minimum payment of 121.375.  But this is clearly wrong.  The calculator on the link above gives me a $259.00 minimum payment, which is actually very close to what I pay.  So I must be doing something wrong.

What is wrong with my calculations?  Thanks.

[Anonymous]

You are doing interest PER YEAR. Your monthly rate is 8.71\12.

0.726 monthly rate

15k *.726=  $108 (int)

15k* 1%= $150

total $258

Message Edited by hotsaka on 03-01-2009 12:56 PM

[Anonymous]

Ahhh...  The CC APR is divided by 12, but the 1% is not.  Otherwise my division by 12 at the end would have been OK.

Very good.  Thanks a lot!!

Also, that formula is wrong then.  It's not the APRxbalance...  It's the "MPR".

Also this e-how-to article has it all wrong. The author has a $260 minimum payment on a 1,500 balance! lol

Message Edited by bogfrog on 03-01-2009 01:01 PM

[Anonymous]

I don't know all the components of minimum payment formula, but I thought it was X%*outstanding balance. My experiences are that different companies have different % ranging from 2% to 4%. I believe Discover is 2%, Chase is 3.5%, Citi is 3.5%, but YMMV.

Try taking your last month payment and divide it by your balance (or average 2 month balance). 

[Anonymous]

maks:  Apparently citibank just uses the OCC formula.  Chase makes it the maximum of the OCC and 2%.  I think it's illegal to go lower than the OCC formula.

[Anonymous]

Thanks. By the way, woudl you be willing to share your tool when you are done with it?

[Anonymous]

I definitely wouldn't mind....  But I wrote it in Matlab, and on top of that it's not very user friendly (you'd have to edit the code to put in your balances, etc). You don't happen to use matlab, do you? (Unless you are a scientist or engineer, I suppose it's quite unlikely)

Message Edited by bogfrog on 03-01-2009 01:59 PM

[MattH]

Bankrate has an excellent selection of calculators here:

http://www.bankrate.com/brm/calculators/calc_index.asp

[Anonymous]

Another question...  When they calculate the minimum payment, do they use your balance on the date of the statement before adding the interest charge, or after adding the interest charge?

[Guardian]

Its a common oversight to use the APR as your actual interest rate. APR is always divided by 12 to get monthly and by 365 to get daily rate but also pay attention because sometimes they give you actual rate not APR and then if you did that it would be wrong too. Just make sure you know which % you are working with. Good luck.