Chart 56
Liquidity Catalyst: Minimum Payment Compliance: JPM and C Still Not Yet Compliant
Example Using Previous Guideline: 2 Percent Minimum Payment Rate (monthly) |
Item Description |
Number |
Beginning balance |
$10,000 |
Annual percentage rate |
18% |
Minimum payment rate |
2% |
Average monthly minimum payment for 1st year |
$194.59 |
Months to pay off debt |
691 |
Total interest paid |
$28,930.64 |
Example Using Previous Guideline: 2 Percent Minimum Payment Rate (monthly) |
Time |
Minimum Payment |
Interest Paid |
Principal Paid |
Remaining Balance |
Year 1 |
$2,335.08 |
$1,751.31 |
$583.77 |
$9,416.23 |
Year 10 |
$18,080.49 |
$13,560.35 |
$4,520.16 |
$5,479.86 |
Year 20 |
$27,988.33 |
$20,991.29 |
$6,997.15 |
$3,002.89 |
Year 30 |
$33,417.76 |
$25,063.32 |
$8,354.47 |
$1,645.54 |
Year 40 |
$36,393.03 |
$27,294.76 |
$9,098.26 |
$901.73 |
Year 50 |
$38,023.51 |
$28,517.47 |
$9,505.92 |
$494.05 |
57 Years, 7 Months |
$38,930.64 |
$28,930.64 |
$10,000.00 |
$0.00 |
Example
Using New Guideline: 4 percent minimum payment rate (monthly) |
Item Description |
Number |
Beginning balance |
$10,000 |
APR |
18% |
Minimum payment rate |
4% |
Average monthly minimum payment for 1st year |
$349.34 |
Months to pay off debt |
178 |
Total interest paid |
$5,915.67 |
Analysis of Principal and Interest Components of New Guideline's 4 Percent Minimum Credit Card Payment over Time |
Time |
Minimum Payment |
Interest Paid |
Principal Paid |
Remaining Balance |
Year 1 |
$4,192.03 |
$1,572.01 |
$2,620.01 |
$7,379.98 |
Year 5 |
$12,497.38 |
$4,686.48 |
$7,810.86 |
$2,189.16 |
Year 10 |
$15,233.25 |
$5,712.45 |
$9,520.82 |
$479.24 |
Year 14 |
$15,537.89 |
$5,826.68 |
$9,711.24 |
$288.83 |
14 Years, 10 Months |
$15,915.67 |
$5,915.67 |
$10,000.00 |
$0.00 |
Notes: A higher minimum payment will lead to more delinquencies and greater bankruptcy risk.The increase in minimum payment rate from 2 percent to 4 percent leads to a new monthly payment that is almost 2 times larger than the previous payment. The result is a high probability that many borrowers with inferior credit may be unable to meet these higher payments, leading to increased delinquencies and bankruptcy risk for lenders.
Sources: Bankrate.com and CIBC World Markets.
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