Which payment option could have interest charged to you? A) Debit card B) Credit card

Which payment option could have interest charged to you?

A) Debit card

B) Credit card

C) Cash

D) Mobile payment

Answer: B) Credit card

Out of all the payment options that are available for purchase, interest may be charged for using a credit card. In contrast with the other means of payment mentioned, credit cards work under the context of a loan, but with a small twist, one has to repay the money in addition to the amount borrowed, sometimes with interest if one has not fully repaid before a certain date.

Whenever you employ a credit card, you’re borrowing money for some time as in a loan. Merchants get paid by the credit card issuer for the purchase amount, and the cardholder will later have to reimburse the issuer. If the balance is settled in full before the due date given (generally 21-25 days from the end of your billing cycle), one is not charged any interest. This is what is usually referred to as the grace period.

However, if one fails to pay the full balance as provided for in the due date, interest charges start accumulating from purchases. For instance, if you use your credit card with an 18% APR to buy something worth $1,000, and only pay the balance in minimum instalments, you will end up paying additional hundreds of dollars in accumulated interest charges.

Interest rates in credit cards are usually of two types depending on the type of transaction that one is undertaking. Credit card purchases may be one interest rate while cash advances or transfers of balance may be another, normally a higher one. Some credit cards are initiated with AP00 that expires after some time and the usual interest rate is applied to the remaining balance.

One should also note that credit cards from varying banks are often a source of interest charges if not well managed but on a positive note credit cards have various benefits; history, fraud protection, and rewards. On the same note, if someone is prudent enough to pay the full balance every month, then the following benefits of credit cards can be obtained without having to pay interest charges.