Why do credit card companies generally prefer that customers make only the minimum monthly payments?

• A. Because it increases the likelihood that customers will pay off their balances quickly.
• B. Because it helps customers avoid paying any interest on their purchases.
• C. Because it allows them to earn more interest over time from outstanding balances.
• D. Because it reduces their administrative costs associated with processing payments.

Answer: (C)

Verified step by step guidance

1. Understand the role of credit card companies: They earn revenue primarily through interest charged on outstanding balances and fees.
2. Recognize that when customers make only the minimum monthly payment, they carry a balance forward to the next month, which accrues interest.
3. Recall that interest on credit card balances is typically charged at a high annual percentage rate (APR), so carrying a balance results in more interest payments over time.
4. Contrast this with customers who pay off their balances in full each month, who avoid interest charges, reducing the credit card company's interest income.
5. Conclude that credit card companies prefer minimum payments because it maximizes the total interest earned from customers over time, increasing their profits.