Q: Does every credit card charge interest on purchases if the balance isn't paid in full?
The question surprises me, because charging interest on the unpaid balance is the principle of how credit cards work and why credit card companies lend money. As far back as the late 1800s, consumers and merchants exchanged goods through the concept of credit, using credit coins and charge plates as currency. It wasn't until about fifty years ago that plastic payments as we know them today became a way of life. (Check out our article on the history of the credit card.) But even over a century ago, interest was charged.
Consider a situation where people are coming to you asking to borrow money. Are you willing to give away all your money without getting something back in return? What if some of your lenders do not pay you back? How will you survive? Therefore, the concept of not charging interest is simply impractical, unless you can find a good friend with an oil well in his back yard.
In fact, the interest rate charged is in direct proportion to how tight the economy is. With runaway inflation the federal government will raise the prime lending rate. Individual banks then will add their cut to that. Prime interest at the moment is 3.25% and has been for about two years. But it is a rare situation to find a credit card with less than 9 percent purchase APR. Interest rates vary widely. Some credit card loans are secured by real estate, and can be as low as 6 to 12 percent.
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