Why Do Credit Card Companies Typically Require Small Minimum Payment

question 16

Multiple Choice

Why do credit card companies typically require small minimum payment amounts on their customers' monthly credit card statements?

• A)Credit card companies are concerned that their customers will be put in financial distress if required to make higher payments.
• B)Credit card companies want to promote faster repayment, and customers will be encouraged to pay more each month if they're able to pay well beyond the minimum.
• C)Credit card companies want to increase profits by promoting slower repayment, and actual customer payments will be anchored by the smaller payment requirements.
• D)Credit card companies actually charge the highest minimum payment they are allowed by law to charge.

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Definitions:

Monthly Profit

The total revenue of a business minus the total expenses for the month, indicating the financial gain.

Variable Cost

Costs that change in proportion to the level of production or business activity, such as materials and labor.

Variable Cost

Costs that vary in direct proportion to changes in levels of production or business activity, such as materials and labor.

Fixed Cost

A cost that does not change with the volume of sales.