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Most banks that issue credit cards charge interest rates on credit car

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Most banks that issue credit cards charge interest rates on credit car  [#permalink]

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New post 21 Jun 2018, 16:20
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GMAT® Official Guide Verbal Review 2019

Practice Question
Question No.: SC
Online test bank question number : CR00677

Most banks that issue credit cards charge interest rates on credit card debt that are ten percentage points higher than the rates those banks charge for ordinary consumer loans. These banks’ representatives claim the difference is fully justified, since it simply covers the difference between the costs to these banks associated with credit card debt and those associated with consumer loans.

Which of the following, if true, most seriously calls into question the reasoning offered by the banks’ representatives?

(A) Some lenders that are not banks offer consumer loans at interest rates that are even higher than most banks charge on credit card debt.

(B) Most car rental companies require that their customers provide signed credit card charge slips or security deposits.

(C) Two to three percent of the selling price of every item bought with a given credit card goes to the bank that issued that credit card.

(D) Most people need not use credit cards to buy everyday necessities, but could buy those necessities with cash or pay by check.

(E) People who pay their credit card bills in full each month usually pay no interest on the amounts they charge.

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Re: Most banks that issue credit cards charge interest rates on credit car  [#permalink]

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New post 21 Jun 2018, 23:43
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Premise: The interest rates on credit card charges are 10 percentage points higher than those on consumer loans.
Banks’ representatives: “These high rates are justified.”
Reasoning given by Banks’ representatives: “this difference in interest rates only covers the costs associated with credit cards.

We have to attack this reasoning and prove that the this move is not justified.

Pre-thinking:
What could make us believe that these higher interest rates are not justified? Something that says there are ways other than increasing interest rates in which the banks can cover their costs.

Option C shows an alternate way in which the banks can cover their costs (fully or partially) apart from increasing the interest rates by 10 percentage points.

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Re: Most banks that issue credit cards charge interest rates on credit car  [#permalink]

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New post 21 Jun 2018, 17:18
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hazelnut wrote:
CR00677
Most banks that issue credit cards charge interest rates on credit card debt that are ten percentage points higher than the rates those banks charge for ordinary consumer loans. These banks’ representatives claim the difference is fully justified, since it simply covers the difference between the costs to these banks associated with credit card debt and those associated with consumer loans.

Which of the following, if true, most seriously calls into question the reasoning offered by the banks’ representatives?

(A) Some lenders that are not banks offer consumer loans at interest rates that are even higher than most banks charge on credit card debt.

(B) Most car rental companies require that their customers provide signed credit card charge slips or security deposits.

(C) Two to three percent of the selling price of every item bought with a given credit card goes to the bank that issued that credit card.

(D) Most people need not use credit cards to buy everyday necessities, but could buy those necessities with cash or pay by check.

(E) People who pay their credit card bills in full each month usually pay no interest on the amounts they charge.


IMO E is the ans.

(A) Some lenders that are not banks offer consumer loans at interest rates that are even higher than most banks charge on credit card debt.
Lenders that are not bank => Irrelevant.

(B) Most car rental companies require that their customers provide signed credit card charge slips or security deposits.
customers provide signed credit card charge slips or security deposits. - Irrelevant

(C) Two to three percent of the selling price of every item bought with a given credit card goes to the bank that issued that credit card.
This at worst strengthens the argument

(D) Most people need not use credit cards to buy everyday necessities, but could buy those necessities with cash or pay by check.
need not use credit cards to buy everyday necessities - This is again out of scope

(E) People who pay their credit card bills in full each month usually pay no interest on the amounts they charge.
People pay no interest on the amounts bank charges. This breaks the reasoning of Bank. Hence Weakens the argument. Correct

Let me know if my understanding is incorrect.
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Re: Most banks that issue credit cards charge interest rates on credit car  [#permalink]

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New post 21 Jun 2018, 20:55
SSM700plus wrote:
hazelnut wrote:
CR00677
Most banks that issue credit cards charge interest rates on credit card debt that are ten percentage points higher than the rates those banks charge for ordinary consumer loans. These banks’ representatives claim the difference is fully justified, since it simply covers the difference between the costs to these banks associated with credit card debt and those associated with consumer loans.

Which of the following, if true, most seriously calls into question the reasoning offered by the banks’ representatives?

(A) Some lenders that are not banks offer consumer loans at interest rates that are even higher than most banks charge on credit card debt.

(B) Most car rental companies require that their customers provide signed credit card charge slips or security deposits.

(C) Two to three percent of the selling price of every item bought with a given credit card goes to the bank that issued that credit card.

(D) Most people need not use credit cards to buy everyday necessities, but could buy those necessities with cash or pay by check.

(E) People who pay their credit card bills in full each month usually pay no interest on the amounts they charge.


IMO E is the ans.

(A) Some lenders that are not banks offer consumer loans at interest rates that are even higher than most banks charge on credit card debt.
Lenders that are not bank => Irrelevant.

(B) Most car rental companies require that their customers provide signed credit card charge slips or security deposits.
customers provide signed credit card charge slips or security deposits. - Irrelevant

(C) Two to three percent of the selling price of every item bought with a given credit card goes to the bank that issued that credit card.
This at worst strengthens the argument

(D) Most people need not use credit cards to buy everyday necessities, but could buy those necessities with cash or pay by check.
need not use credit cards to buy everyday necessities - This is again out of scope

(E) People who pay their credit card bills in full each month usually pay no interest on the amounts they charge.
People pay no interest on the amounts bank charges. This breaks the reasoning of Bank. Hence Weakens the argument. Correct

Let me know if my understanding is incorrect.








Could you tell me the meaning of this question?
Is this asking for strengthening or weakening the argument?

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Re: Most banks that issue credit cards charge interest rates on credit car  [#permalink]

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New post 21 Jun 2018, 21:44
viveknegi wrote:

Could you tell me the meaning of this question?
Is this asking for strengthening or weakening the argument?

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Hi viveknegi

It is weakening Question. It asks you to find the flaw in the reasoning. So basically it asks us to weaken the argument.

Hope it helps!!
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Re: Most banks that issue credit cards charge interest rates on credit car  [#permalink]

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New post 21 Jun 2018, 21:57
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IMO C

Conclusion: Interest rates on credit card debt that are ten percentage points higher than the rates those banks charge for ordinary consumer loans
Premise: it simply covers the difference between the costs to these banks associated with credit card debt and those associated with consumer loans

Option C: Two to three percent of the selling price of every item bought with a given credit card goes to the bank that issued that credit card- this actually links both premise and conclusion and weakens the arguement

Option A, B , D are irrelevant
And E- is attacking only the premise but not considering the whole argument

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Most banks that issue credit cards charge interest rates on credit car  [#permalink]

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New post 21 Jun 2018, 22:11
mnav wrote:
IMO C

Conclusion: Interest rates on credit card debt that are ten percentage points higher than the rates those banks charge for ordinary consumer loans
Premise: it simply covers the difference between the costs to these banks associated with credit card debt and those associated with consumer loans

Option C: Two to three percent of the selling price of every item bought with a given credit card goes to the bank that issued that credit card- this actually links both premise and conclusion and weakens the arguement

Option A, B , D are irrelevant
And E- is attacking only the premise but not considering the whole argument

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mnav - you are correct about E. But E is attacking the premise and thus weakening the argument.

How in Choice C : Two to three percent of the selling price of every item bought with a given credit card goes to the bank
weakens the conclusion Interest rates on credit card debt that are ten percentage points higher than the rates those banks charge.

We don't have any information to confirm that 2-3 % of S.P is providing lesser or no benefit to banks.

Whereas in E, we can be sure that since consumer is not paying any interest, banks are not benefiting from this.

Let's wait for OA and OE to understand if our argument is correct.
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Re: Most banks that issue credit cards charge interest rates on credit car  [#permalink]

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New post 21 Jun 2018, 23:59
SSM700plus wrote:
mnav wrote:
IMO C

Conclusion: Interest rates on credit card debt that are ten percentage points higher than the rates those banks charge for ordinary consumer loans
Premise: it simply covers the difference between the costs to these banks associated with credit card debt and those associated with consumer loans

Option C: Two to three percent of the selling price of every item bought with a given credit card goes to the bank that issued that credit card- this actually links both premise and conclusion and weakens the arguement

Option A, B , D are irrelevant
And E- is attacking only the premise but not considering the whole argument

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mnav - you are correct about E. But E is attacking the premise and thus weakening the argument.

How in Choice C : Two to three percent of the selling price of every item bought with a given credit card goes to the bank
weakens the conclusion Interest rates on credit card debt that are ten percentage points higher than the rates those banks charge.

We don't have any information to confirm that 2-3 % of S.P is providing lesser or no benefit to banks.

Whereas in E, we can be sure that since consumer is not paying any interest, banks are not benefiting from this.

Let's wait for OA and OE to understand if our argument is correct.
Hi

IMO Option E is also wrong because it is strengthening the bank's representative statement that credit card costs are higher than consumer loans because they give credit for atleast some period at zero interest rate. Option C says that difference in costs is reduced


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Most banks that issue credit cards charge interest rates on credit car  [#permalink]

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New post Updated on: 22 Jun 2018, 01:47
Hi chetan2u

Please help in answering this. I went with C.

hazelnut wrote:
GMAT® Official Guide Verbal Review 2019

Practice Question
Question No.: SC
Online test bank question number : CR00677

Most banks that issue credit cards charge interest rates on credit card debt that are ten percentage points higher than the rates those banks charge for ordinary consumer loans. These banks’ representatives claim the difference is fully justified, since it simply covers the difference between the costs to these banks associated with credit card debt and those associated with consumer loans.

Which of the following, if true, most seriously calls into question the reasoning offered by the banks’ representatives?

(A) Some lenders that are not banks offer consumer loans at interest rates that are even higher than most banks charge on credit card debt.

(B) Most car rental companies require that their customers provide signed credit card charge slips or security deposits.

(C) Two to three percent of the selling price of every item bought with a given credit card goes to the bank that issued that credit card.

(D) Most people need not use credit cards to buy everyday necessities, but could buy those necessities with cash or pay by check.

(E) People who pay their credit card bills in full each month usually pay no interest on the amounts they charge.

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Originally posted by Adi93 on 22 Jun 2018, 01:41.
Last edited by Adi93 on 22 Jun 2018, 01:47, edited 1 time in total.
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Re: Most banks that issue credit cards charge interest rates on credit car  [#permalink]

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New post 22 Jun 2018, 01:45
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Another for C.E doesnt do much.C is saying 10% points increase is not fully justified as credit card companies get some amount during purchase.E infact strengthens the argument by saying that the extra costs are infact justified

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Most banks that issue credit cards charge interest rates on credit car  [#permalink]

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New post 22 Jun 2018, 02:56
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Adi93 wrote:
Hi chetan2u

Please help in answering this. I went with C.

hazelnut wrote:
GMAT® Official Guide Verbal Review 2019

Practice Question
Question No.: SC
Online test bank question number : CR00677

Most banks that issue credit cards charge interest rates on credit card debt that are ten percentage points higher than the rates those banks charge for ordinary consumer loans. These banks’ representatives claim the difference is fully justified, since it simply covers the difference between the costs to these banks associated with credit card debt and those associated with consumer loans.

Which of the following, if true, most seriously calls into question the reasoning offered by the banks’ representatives?

(A) Some lenders that are not banks offer consumer loans at interest rates that are even higher than most banks charge on credit card debt.

(B) Most car rental companies require that their customers provide signed credit card charge slips or security deposits.

(C) Two to three percent of the selling price of every item bought with a given credit card goes to the bank that issued that credit card.

(D) Most people need not use credit cards to buy everyday necessities, but could buy those necessities with cash or pay by check.

(E) People who pay their credit card bills in full each month usually pay no interest on the amounts they charge.



Hi Adi93,
It is clear cut C...

The question is about the difference in the rates of interest rates that banks charge on credit card debt and loans..
The official claims it is because of the associated costs that are incurred on the two..

All except C are nowhere close..

C tells us that apart from the costs involved, there is a certain amount the banks get from the shops using the card which is almost 2-3 %, much more than the difference in interest of 10 basis point or 0.1% between the two..
Not required to know the basis points but the choice clearly gives a way these banks are earning on the use of credit card.

Since few have taken E as the answer..
It is out of context and at best agrees with official so opposite of what we are looking for..
So if there are a lot of people not paying any interest on the amount used, these interest too has to be recovered from late payers or credit card debt..
Thus justified in a way for extra 10 basis points...

Clear answer C
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Re: Most banks that issue credit cards charge interest rates on credit car  [#permalink]

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New post 26 Jun 2018, 03:32
SSM700plus wrote:
viveknegi wrote:

Could you tell me the meaning of this question?
Is this asking for strengthening or weakening the argument?

Posted from my mobile device


Hi viveknegi

It is weakening Question. It asks you to find the flaw in the reasoning. So basically it asks us to weaken the argument.

Hope it helps!!


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Re: Most banks that issue credit cards charge interest rates on credit car  [#permalink]

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New post 07 Aug 2018, 18:36
Don't like any of them, but one must be right and that must be C. All others are out-of-scope. C is also poor because there isn't information to support that the 2-3% greatly reduces the difference in cost to the banks, but that's over engineering it.
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Re: Most banks that issue credit cards charge interest rates on credit car  [#permalink]

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New post 07 Aug 2018, 18:48
I'd say C too for the same reasons as redskull1.

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Re: Most banks that issue credit cards charge interest rates on credit car  [#permalink]

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New post 27 Aug 2018, 10:24
I don't understand the logic behind C
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Re: Most banks that issue credit cards charge interest rates on credit car  [#permalink]

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New post 27 Aug 2018, 10:33
Hey Shivikaa04 --

The key here is to look directly at the conclusion that the banks reach - the reason that they charge the increased interest is simply to account for the difference in what it costs them to carry that debt. There are a couple gaps in this logic, but the most obvious is this: what if the bank isn't just making money from the difference in interest rates - what if they have some other revenue from offering credit cards? C fits that perfectly -- If the bank is already making 2 - 3% off every purchase (which they wouldn't make off another purchase), then they are already seriously offsetting the risk that they're carrying. It doesn't destroy the argument, but it does call into question the idea that charging high interest rates is the only way for them to recoup their costs, especially since not all credit card users are going to be carrying debt from month to month.
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Re: Most banks that issue credit cards charge interest rates on credit car  [#permalink]

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New post 05 Oct 2018, 11:35
Shivikaa04 wrote:
I don't understand the logic behind C


Dear Shivikaa04
Happy to help you on this,

Quote:
Most banks that issue credit cards charge interest rates on credit card debt that are ten percentage points higher than the rates those banks charge for ordinary consumer loans. These banks’ representatives claim the difference is fully justified, since it simply covers the difference between the costs to these banks associated with credit card debt and those associated with consumer loans.

The bank representative's claim: the difference is fully justified, since it simply covers the difference between the costs to these banks associated with credit card debt and those associated with consumer loans.
Premises: Most banks that issue credit cards charge interest rates on credit card debt that are ten percentage points higher than the rates those banks charge for ordinary consumer loans

Hence in order to weaken this claim by the bank's representatives we need to show that there are other sources from which the difference between the costs may be covered.

Quote:
Which of the following, if true, most seriously calls into question the reasoning offered by the banks’ representatives?
You basically need to weaken the bank's representatives claim.

Quote:
(A) Some lenders that are not banks offer consumer loans at interest rates that are even higher than most banks charge on credit card debt.

(B) Most car rental companies require that their customers provide signed credit card charge slips or security deposits.
Absolutely out of scope. In first we aren't concerned what other lenders, who aren't bank, do.
Second certainly shows the value that credit card holds in the eyes of people as ready money, but has nothing to do with the bank representative's claim.

Quote:
(C) Two to three percent of the selling price of every item bought with a given credit card goes to the bank that issued that credit card.
If 2 or 3 percent of selling price of every item bought with a given credit card goes to the bank that issued that credit card. Then this clearly shows that bank representative make false claim about covering the cost of credit card debt. In such a case even if they keep the same interest rate of credit card debt and ordinary consumer loan debt, still they would end up earning an incentives on credit card debt through sales people make using the credit card.

Quote:
(D) Most people need not use credit cards to buy everyday necessities, but could buy those necessities with cash or pay by check.
Great then do use the cash, who stops you. Banks don't care for you guys. But banks won't stop either to call you and bug you for getting a credit card issued. :lol: Out of scope.

Quote:
(E) People who pay their credit card bills in full each month usually pay no interest on the amounts they charge.
This rather strengthen the argument that bank representative's make. If people use the credit card free of cost, then how do banks cover the operational costs of credit card as a financial product offered by banks..
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