Like when a card says it offers a percentage of cash back
Wth does that even mean? If I borrow 200$, then I pay back 200$ or more, so what is cash back?
In: 5
Credit card companies charge fees to the merchant for every purchase, typically in the range of 4-5%. This is why some merchants charge extra if you use a card, most commonly known are gas stations. What this means is that, if you charge $200, the merchant gets around $190, the card company gets $10, and you pay $200.
In order to encourage their customers to use their cards, and thus get the company those fees, many card companies will offer various rewards. A common one is “cash back” where the company will pay the customer a percentage of their qualifying purchases. Another common one is points towards flights or other items.
If the company gives 1% cash back, the merchant gets $190, the card company gets $9, and you effectively pay back $199.
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