Final answer:
The least amount of money that must be paid each month on a debt like a credit card or loan is known as the minimum payment. It includes portions of both the principal and the accrued interest.
Step-by-step explanation:
The least amount of money that is required to be paid each month on a debt is referred to as the minimum payment. The minimum payment typically includes a portion of the principal (the original amount of money borrowed) and the interest that has accrued on the outstanding balance. For example, if you carry a credit card balance from month to month, you will be required to make at least the minimum payment.
To fully grasp how payments are applied to a loan, let's consider a scenario with a loan amount of $300,000, at a 6% interest rate, convertible monthly over 30 years. The monthly payments are determined based on the principal and interest, and if a borrower decides to make payments larger than the required minimum, they may save both time and money by reducing the total interest paid over the life of the loan.