Tesco Bank to increase minimum payments for 125,000 credit card customers
TESCO credit card customers could see their minimum repayments rise by £20 a month from March.
reported the changes at the end of last month, stating that they could affect up to 125,000 users.
The changes are said to be in an effort to avoid persistent debt for customers.
Tesco Bank has become the latest lender to up its minimum payment rules, following in the footsteps of Barclaycard last week.
What’s changing?
Tesco says around 5% of its credit card customers, which is around 125,000 people, will see their minimum payments increase by an average of £20 a month from March.
Tesco credit card payment increase explained
HERE'S what it means
This means a customer’s minimum payment will be the greatest of the following four values:
- 1% of the balance plus interest and default fees £25
- Any amount over the credit limit plus over-limit fees
- Two times interest and default fees, plus £5 (new clause from March)
Tesco Bank says the change affects people who opened credit card accounts between November 2017 and May 2020 as well as customers who are currently in introductory periods on their credit cards.
The changes comes into force from March, but 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.
This change does not affect the Foundation credit card, which isn't changing.
Is it a good thing?
Higher repayments can be a good thing, as you clear debt quicker and pay less overall.
However, it can affect your cash flow and give you less flexibility each month.
Andrew Hagger from Moneycomms told The Sun that asking people to make slightly larger minimum payments does have benefits.
He said: “I think it's a good move from Tesco Bank- although some customers may not see it that way.”
He added that low minimum payments aren’t the best option for customers.
“Low payments barely cover your monthly interest”he said, “so they’re not in the best interest of customers - it can keep people in persistent debt and the FCA doesn't like that.”
As part of the Financial Conduct Authority's (FCA) shake-up, banks have been encouraging credit card users who only make minimum repayments to increase them over a 36-month period.
Mr Hagger went on to say that he wouldn't be surprised to see other card lenders follow these recent moves.
He added: “Credit cards are not designed for keeping a constant big balance for months on end.
"They are meant to help out now and again when you get an unexpected expense or you want to spread the cost of a big ticket item over a few months.”
His advice for anyone struggling with the repayments is to consider a personal loan to repay a credit card with fixed monthly repayments that’s affordable for your budget.
For example, you could switch to a 0% balance transfer card if your credit score is good enough to get a top one. You will usually have to pay a fee to transfer the balance.
Rachel Springall from told The Sun that this is the worst possible time of year for consumers to see their minimum repayment rise. "On the positive side, it will mean that customers are clearing their debts sooner. There could well be more changes of this type as card providers make changes to tackle the issue of persistent debt"
Ms Springall said that customers should speak to the card provider if they are struggling to keep up with their repayments. "If they are concerned about missing payments they could also reach out to a debt advice charity for guidance, such as Step Change. It's vital the minimum is a temporary amount to repay or their debt could hang overhead for a long time.”
You should compare the total cost of repaying your debt before deciding to take out a credit card or loan to pay it off.
Use comparison sites such as MoneySupermarket.com and GoCompare to compare rates.
Remember to do your research before you apply or use an an elgibility checker, which won't leave a hard search on your credit file.
This is because multiple searches for credit can damage your score.
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What if you can’t afford it?
Tesco won't implement the changes if customers can't afford it.
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.
What to do if you need help
HERE are some options:
- Speak to 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. It's encouraging customers to get in touch by calling 0345 300 4278.
- Check if you can cut repayment costs with a balance transfer. A balance transfer is where you get a new card to pay off your existing debt, and then owe the new card instead, often at 0% interest. This means all your repayments will reduce your debt rather than paying off interest.
- You can also choose to close your Tesco credit card account if you prefer. 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.
A spokesperson from Tesco Bank told The Sun that this change was made to help customers pay their credit card debts more quickly.
They said: "We've excluded customers from this change where we've identified they may have difficulty affording the new minimum payment.
"Any customer who has concerns about meeting a new minimum payment amount should contact us."
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You can contact the Tesco Bank Credit team
If you're looking for ways to pay off debt, have a look at these tips.