Interest on negative credit card balances
This is equal to the value of a loan multiplied by the interest rate. The interest rate is 10%. Negative credit card balances are 20% of the average amount paid via credit card.
When there is negative credit card balance, it means customer has overpaid the credit limit. And banks usually dont charge interest rate if we overpay. I am unable to understand the 10% interest rate and 20% of average amount paid. How did we arrive at those percentages ?
(editiert)
I appreciate your clarification, Nish. It’s my understanding that the Annual Percentage Rate (APR) for credit cards becomes applicable when there is an outstanding balance. I presume that the APR in this context is 10%, which seems rather conservative considering that credit card providers typically charge around 18% to 19%. I’m curious if the interviewer might inquire about the 20% figure. Could you please explain how we arrived at this percentage?
Hi Trishanan Thanks for your query. For part 1 of your query on interest rate, I agree it's conservative but it's part of the case information. However, in the interview your observations can fetch brownie points, so do make those remarks to the interviewer! :) For part 2 of your query on avg. balance assumption, 20% is ballpark. In absence of any data provided to you, 10%/15%/20% would all seem reasonable. Though a substantially higher number might raise an eyebrow. The essential point though is that it would be similar for both the client and competitor as this number is an industry avg. Hence, you would arrive at a similar estimate for both in terms of avg. revenue per customer. Do get in touch if you have further questions! :)