Which form of payment charges you interest?
Debit Card
Cash
Credit Card
Prepaid Card
The correct answer and explanation is:
The correct answer is Credit Card.
Credit cards typically charge interest on balances that are not paid in full by the due date. This is one of the key differences between credit cards and other forms of payment, such as debit cards, cash, and prepaid cards.
A credit card allows the user to borrow money from the card issuer, up to a certain limit, to make purchases or withdraw cash. If the user does not pay off the balance by the due date, the credit card company will apply interest on the remaining balance. The interest is calculated as a percentage of the amount owed, and the rate is referred to as the Annual Percentage Rate (APR).
If the full balance is paid by the due date, there is typically no interest charge. However, if only a partial payment is made, interest is charged on the unpaid portion. Credit cards also often have penalties for missed payments, which can further increase the amount owed.
In contrast, debit cards and prepaid cards do not charge interest. Debit cards are linked to a checking account, and when you make a purchase, the funds are withdrawn directly from your account. If there are insufficient funds, the transaction may be declined (unless overdraft protection is in place, which may incur fees). Prepaid cards work similarly, but they are loaded with a set amount of money in advance. Neither debit nor prepaid cards offer credit, so they do not incur interest.
Cash also does not charge interest because it is not a form of credit. It is simply the physical currency that you use to make purchases, and no loan is involved. Therefore, no interest charges apply.
In summary, the form of payment that charges interest is a credit card when the balance is not paid off in full by the due date.