Major high street bank to slash key fee that will lower payments for millions of customers – but there’s a catch

A MAJOR high street bank is slashing fees for credit card repayments this summer which will lower monthly payments for millions of customers, The Sun can reveal.

The top lender is making a raft of changes to how it calculates the minimum repayments customers must make on their credit card bill each month from July.

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Barclaycard will be changing from a tiered structure, where customers may have to pay anywhere between 2.25% and 4.25% of their overall balance, to one that calculates repayments based on each individual customer’s circumstances.

From July 22, customers will pay the highest of the following each month:

• 1% of the customer’s main credit card balance
• 1% of the customer’s main balance plus any interest, default fees or account fees
• The customer’s total outstanding balance, if this is less than £5.

It is understood the new structure will apply to all Barclaycard customers, resulting in 80% of customers’ monthly repayments either reducing or staying the same.

However, many customers could end up paying far more over time as they will be clearing their balance more slowly, meaning more interest is being added.

The bank will also be changing how much APR it charges some customers.

APR is the total interest rate you pay back over the course of a year, so an increase to a customers’ APR means they will end up paying more back in interest.

While Barclays said the majority of customers will see their APR stay the same or go down, The Sun understands some customers on “historic rates” will see an increase to their APR of up to 9.9%.

However, customers affected will still pay lower rates than new Barclaycard customers, and 97% of them will have less than £10 added to their monthly interest.

Barclays has more than 36million customers including both current account and credit card users.

This means millions of customers will be affected by the changes from July.

A spokesperson for Barclays told The Sun: “We regularly review our products and from July, some Barclaycard customers will see changes to their minimum monthly payments, alongside adjustments to the APR.

“Customers will benefit from a reduction in their minimum monthly repayment and the vast majority have no change to APR, while some will receive a decrease.”

In a letter to Barclaycard Platinum customers, seen by The Sun, the bank gave an example of how much the new repayment structure will change monthly costs.

It explained that someone with a balance of £5,000 today would pay £179.92 if they made the minimum payment every month, while from July 22 they would pay £142.42.

While many customers will feel some light relief from the changes in the short-term, experts have warned that paying less in minimum repayments means you could end up paying more long-term.

This is because more interest will end up being applied to your outstanding balance as less is being paid down each month.

A customer with a £5,000 balance currently paying £179.92 with an APR of 29.9% – which Barclaycard says is the rate offered to most customers – would clear their balance by December 2027 and pay £2,824 in interest in total.

If they reduced their minimum payment to £142.24, they would not clear the balance until January 2030 and would end up paying back a huge £4,709 in interest.

Sarah Coles, head of personal finance at broker Hargreaves Lansdown, explained: “Minimum credit card repayments can lull borrowers into a false sense of security.

“Just because the minimum is affordable, they might think they’re on top of their credit card debts.

“However, just paying the minimum can mean you carry this expensive debt for years or even decades, and pay a small fortune in interest.”

Barclaycard customers will still be able to pay more than the minimum repayments each month if they wish to, either by setting up a fixed direct debit or standing order, or by making individual payments.

Customers began being notified about the change to repayments last month and everyone has been given at least 60 days’ notice.

In the letter to customers, Barclaycard said: “We wanted to let you know that we’re changing the way we work out your minimum payment on your card from July 22 2024. This means the minimum amount you pay each month will go down,” the letter said.

“We’re making these changes to give you greater flexibility over how much you pay each month.”

Should I pay more than the minimum?

The minimum credit card repayment each month is the minimum amount you can pay off your outstanding balance without being hit with late fees or a poor credit rating.

This is usually a percentage of your overall statement or a specific amount, whichever is greater.

It’s really important to pay at least the minimum repayment amount each month to avoid damaging your credit score or racking up additional charges.

But experts warn that only paying the minimum can lead to paying back far more to the lender than you borrowed due to the interest added.

So, if you can afford to pay extra you will be saving yourself cash long-term.

The best way to avoid interest altogether is by paying off your total credit card balance every month. By doing this you won’t be charged any extra fees.

Ms Coles said: “If you’re carrying credit card debts, don’t stick to the minimum repayment.

“Draw up a budget, work out where you can squeeze a little extra cash from your spending, and pay your debts off as quickly as you can afford.”

Remember that banks can always increase the minimum repayments they demand each month too, so factor this in before taking on credit card debt.

How to get the best credit card deals

It pays to get the best credit card deal on the market, so it’s a good idea to shop around before applying.

Use a comparison site like MoneySuperMarket to compare the best offers available right now.

You will need to put in your personal details to get a personalised offer that’s best for you.

MoneySavingExpert.com also publishes rankings of the best credit cards out there including typical interest rates and extra perks they offer.

Don’t apply for multiple credit cards at once, especially if you have been recently rejected for a card, as this can damage your credit score.

This post first appeared on thesun.co.uk