Tesco Bank to raise minimum repayments by average £20/month for up to 125,000 customers
Up to 125,000 Tesco Bank credit card customers could see their minimum repayments rise by £20 a month on average from March, in a move the lender says is a bid to combat persistent debt. For many, higher repayments are a good thing, as you clear debt quicker and pay less overall, but it can also hit cashflow and give you less flexibility. Here's what's happening and what to do if you're struggling.
Under the shake-up, monthly minimum repayments for some will increase to double the interest and default fees, plus £5. Tesco Bank says less than 5% of its 2.5 million credit card customers will be affected by the change, but that means they will apply to up to 125,000 people. Some struggling to make repayments will be excluded, though - see below for more on this.
It comes after Barclaycard raised minimum repayments across most of its cards, by as much as 50% in some cases, earlier this week. See our Credit Cards guides for full help and our current top picks for 0% spending, balance transfers, rewards and rebuilding your credit score.
Minimum repayments can be dangerous: the slower you repay, the more it costs
Credit card minimum repayments are typically a percentage of your outstanding debt, so as your debt decreases, so does the amount you need to repay. But this means if you only make the minimum repayment, your debts will last longer than if you were to make fixed repayments each month, and you'll pay more interest overall. Use our Minimum Repayments Calculator to check how long your card will take to repay if you just pay the minimum.
That's why for many, having a higher minimum repayment will be a good thing - it means you'll become debt-free quicker. And in fact, if you can afford it and you're paying interest on your credit card now, you should consider repaying even more, as the quicker you repay, the less it costs. If you can afford it, consider switching to making a fixed repayment that's higher than the minimum repayment, in order to pay your debt off quicker.
You can also check if you can cut repayment costs with a balance transfer. See more info in our Credit Card Minimum Repayments guide.
Tesco Bank customers who took out cards between 2017 and 2020 may be affected
Tesco Bank says the shake-up affects people who opened credit card accounts (barring its Foundation credit card, which isn't changing) between November 2017 and May 2020 - and who are currently in introductory periods on their credit cards.
But while the change comes into force from March, Tesco Bank says payments won't change until your introductory period ends. So if, for example, your introductory period doesn't end until May 2021, you won't see any change to your repayments until this point.
Tesco Bank has also stressed that it won't apply the increases to customers it's identified who would struggle to make higher repayments. You won't have been notified if the changes don't apply to you though - so if you haven't heard anything, your payments won't change (though if you're unsure you can still get in touch).
Minimum repayments will increase by £20/mth on average
When the change kicks in, affected customers will pay the highest of:
- New. 2x the interest and default fees, plus £5. This clause is being added.
- 1% of their balance plus interest and any default fees. This is an existing clause.
- The amount they're over the limit by, including over limit fees. This is an existing clause.
- £25. This is an existing clause.
At the moment, affected customers only pay the highest of the last three options - so if the first calculation brings you to a higher minimum repayment than the other three, you'll see an increase to what you pay each month.
These requirements are already used to work out minimum repayments for new customers who have taken out credit cards since May 2020. Customers who took their cards out before November 2017 aren't affected and will continue to make minimum repayments based on the highest of 1% of their balance plus interest and default fees, their over limit amount including over limit fees, or £25.
Tesco won't implement the changes if customers can't afford it
As stressed above, for many higher repayments will be a good thing - so if you can afford to make them, it's best to do so, or even pay more. Tesco Bank says the aim behind the change is to help people avoid getting into persistent debt.
Of course, for some a hike in repayments can be a problem - for example, if you'll struggle to pay the extra each month, or if you're repaying multiple cards and the Tesco Bank isn't the most expensive (a golden rule of repaying debt is to always focus on the debts at the highest rate of interest - if necessary you should focus on clearing these first and only make minimum repayments on the others). If that's the case for you:
- Speak to Tesco Bank. It's already said it won't apply the changes to customers who it's identified as being at risk of struggling to afford higher repayments - but if you've slipped through the cracks and have been told your payments are going up it's encouraging customers to get in touch by calling 0345 300 4278.
- Check if you can cut repayment costs with a balance transfer. This could help if you pay interest on your credit card currently. A balance transfer's where you get a new card to pay off your existing debt, and then owe the new card instead, often at 0% interest – meaning all your repayments will reduce your debt rather than paying off interest. For full info and our current top pick cards, see Balance Transfer Credit Cards. Also see our Free Debt Help guide if you're struggling.
You can also choose to close your Tesco credit card account if you prefer - if you do this you'll carry on paying off any debt at your current minimum repayment rate, though you won't be able to spend on the card any more. The deadline to close your card is 25 February 2021.
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