4 ms·

How do CC companies make money off of minimum payments? Don't they lose money by lending more than what's paid back?

rm_-rf_slash 10y ago
At first, yes, they lose money, but over time the interest charges outpace the original balance by far. And people are still bound by credit limits.
cylinder 10y ago
Lenders just want debt service, not principal paid back. Loans are an asset on a bank's balance sheet.
- ArkyBeagle 10y ago
  Are they really even lenders anymore? I'll refrain from colorful characterizations of what they might be. Real lenders throughout human history want a nice predictable retirement of the debt so they can use reserve multipliers.
itchyouch 10y ago
You ever see the new disclosures on a credit card? It usually says something like: On your $1000 balance, paying only the minimum will take 7.5 years to pay off the balance and you will pay a total of $3500. Pay $35/mo and will pay off your balance in 3 years and pay a total of $1500.
- madelinecameron 10y ago
  Which is still kind of deceptive considering if you can't pay back that balance immediately, you likely won't be able to go 7.5 years without putting more on. The issue isn't predatory lending by credit cards (necessarily anymore), it is our obsession with having material goods and "keeping up with the Joneses"... who are also in debt up to their eyeballs. So, in my mind, it is just a race to the bottom (of your lifetime bank account).
ChemicalWarfare 10y ago
It's banks that do, CC companies primarily just facilitate the data exchange between the parties involved and charge per tx fee. The way banks make money on those payments is the way any other interest loan payment works - you'll eventually pay what you owe but by the time you're done you paid the original debt + interest.
- mwexler 10y ago
  Actually, the issuing banks will get some of the transaction fees as well, so they make out both ways. The "CC companies" are better thought of as networks (Visa, etc.) and they live mostly on those transaction fees, as you mention. The networks don't issue any cards, and they carry debit and other transactions as well, so not quite right to call them "CC companies".
  - ChemicalWarfare 10y ago
    Probably splitting hairs at this point, but yes, the issuing bank will typically get a per-tx interchange fee from the merchant bank. Merchant bank will charge the merchant to recoup that cost. Yea 'CC Companies' is not the most accurate term, but when someone uses that term in a casual conversation I typically know what they mean :)
deleted 10y ago
[deleted]

At first, yes, they lose money, but over time the interest charges outpace the original balance by far. And people are still bound by credit limits.

cylinder 10y ago

Lenders just want debt service, not principal paid back. Loans are an asset on a bank's balance sheet.

ArkyBeagle 10y ago
Are they really even lenders anymore? I'll refrain from colorful characterizations of what they might be. Real lenders throughout human history want a nice predictable retirement of the debt so they can use reserve multipliers.

itchyouch 10y ago

You ever see the new disclosures on a credit card? It usually says something like: On your $1000 balance, paying only the minimum will take 7.5 years to pay off the balance and you will pay a total of $3500. Pay $35/mo and will pay off your balance in 3 years and pay a total of $1500.

madelinecameron 10y ago
Which is still kind of deceptive considering if you can't pay back that balance immediately, you likely won't be able to go 7.5 years without putting more on. The issue isn't predatory lending by credit cards (necessarily anymore), it is our obsession with having material goods and "keeping up with the Joneses"... who are also in debt up to their eyeballs. So, in my mind, it is just a race to the bottom (of your lifetime bank account).

ChemicalWarfare 10y ago

It's banks that do, CC companies primarily just facilitate the data exchange between the parties involved and charge per tx fee. The way banks make money on those payments is the way any other interest loan payment works - you'll eventually pay what you owe but by the time you're done you paid the original debt + interest.

mwexler 10y ago
Actually, the issuing banks will get some of the transaction fees as well, so they make out both ways. The "CC companies" are better thought of as networks (Visa, etc.) and they live mostly on those transaction fees, as you mention. The networks don't issue any cards, and they carry debit and other transactions as well, so not quite right to call them "CC companies".
- ChemicalWarfare 10y ago
  Probably splitting hairs at this point, but yes, the issuing bank will typically get a per-tx interchange fee from the merchant bank. Merchant bank will charge the merchant to recoup that cost. Yea 'CC Companies' is not the most accurate term, but when someone uses that term in a casual conversation I typically know what they mean :)

deleted 10y ago

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