Nowadays it is common for people to have a credit card. Many companies selling credit cards issue cards for free. Along with this, many benefits are given. Which includes many facilities like reward points, cashback. But do you know how the companies issuing credit cards (Credit Card Companies) earn their money? How does their business run?
How do credit card companies earn?
Credit card issuing companies work as a loan giving business. That is, their income also comes from interest. Apart from these, there are many other means through which credit card companies earn.
Most income comes from interest
These companies earn the most from interest. Many people are not able to pay their bills on time. In such a situation, they have to pay heavy interest. This interest can range from 30 to 50 percent. Apart from this, there are many people who buy EMI goods through credit card. For which they also have to pay interest. In which interest rates can be between 10 to 20 percent.
Tax has to be paid on withdrawing cash
When someone withdraws money through credit card, they will have to pay heavy tax on that too. According to RBI data, in the last financial year, people using credit cards withdrew INR 300-400 crore every month. Due to which the companies issuing credit cards earn a lot.
Also Read: Utilize your credit card for tax payments to avail both cashback and refund
Profit is also made from loan facility
Credit card companies also provide loan facility to the people. Due to which they earn from the interest received on the loan.
Apart from this, there are many other ways through which credit card companies earn;
- Earning through interchange income.
- Credit card companies also earn through membership fees.
- Earning through credit card joining fees.
- Credit card companies also earn through late fees, balance transfer, foreign transaction fees, cash advance fees and some charges.