What does bank get from having “grace period” on their credit cards?

Question

For example, my current credit card has a grace period of 120 days, what is the bank’s motivation to let me use their money for free for 3-4 months?

In: 1

Answer 1

The credit card company is charging the merchant fees for accepting credit card purchases. So even if a customer is always paying their bill on time and seeing zero interest, the credit card still is making revenue for the card company. The merchant doesn’t get the money right away either, there is a delay of days/weeks before all the transactions are settled and the actual cash trades hands.

And really, for someone who can pay off the card without interest, that’s motivation to use the card, isn’t it? Make all your purchases on the card, pay the bill later, and there’s no penalty for the delay. Sounds great to me!