I guess you're both giving each other loans, but even if you pay your bill in full each month, yours still isn't free. If you're getting 5% back, then the item was almost certainly marked up more than 5%. So you're still paying something for that loan in the form of higher up-front pricing.

And, of course, if you don't pay your bill in full each month, then you're likely looking at 15-20% or more (APR) on whatever balance you left unpaid.

> If you're getting 5% back, then the item was almost certainly marked up more than 5%.

How though? The 5% back is not a rebate coming from the merchant, it's coming from the card issuer. Don't they (generally -- barring special agreements for specific cards) get the same amount of money regardless of what cards people use?

When I ran a business that accepted credit cards, I had to pay different levels of fees depending on the type of card and rewards scheme associated with it. I had to set my prices based on the highest rewards card fees, and if someone paid with a lower fee card, I just kept the difference as extra profit. (My agreement with the CC processor explicitly required me to give everyone the same price regardless of how they paid.)

I think 5% is a special case that's limited to specific vendors or products, I'm not aware of any general rebate higher than 2%.

I know Stripe and Square and other companies have come along now that charge the same fees regardless of the type of card - but note that they're all above 2%.

I think the only difference now is that Stripe/Square/etc. keep the difference as profit when someone pays with a non-rewards card, instead of the vendor. (But, in their defense, they're able to negotiate lower rates than I was ever able to get on my own.)