Hello Charity,
In response to your statement, "People tend to question that if God is all-powerful and all-loving, then why does He not pardon sin just out of His mercy?", I would point out that these are indeed attributes of God. He is "all-powerful" and loving. However, according to the Bible, another attribute of God is holiness. Before defining holiness, it is important that "sin" is defined. Sin is ". . . any failure to conform to the moral law of God in act, attitude, or nature" (Systematic Theology, Wayne Grudem, 490)
Now, holiness may be defined as ". . . he [God] is separated from sin and devoted to seeking his own honor" (Systematic Theology, Wayne Grudem, 201). Defining sin and holiness is important because when one talks about mercy, it generally is in response to a wrong committed. The Bible says that all have sinned (Romans 3:23). Meaning all human beings have sinned against the holy God or have committed many wrongs against God.
One could compare the punishment of sin to the way the United States punishes crimes in its judicial system today. In a court of law, if one commits a crime, such as theft or murder, one has broken the law and one is required to be punished in order for justice to be served. Now, would a judge in the judicial system be righteous if he or she lets thieves and murders go free for crimes they have committed? No. In the same way, God cannot let anyone who sins against Him be excused from their sin. That individual has broken God 's law and it would be unrighteous for God to allow someone to go unpunished for sins he or she has committed.
The reason a sacrifice for sins is needed is because unless someone is punished on a sinner's behalf that person will have to be punished. Therefore, the need for Jesus dying on the cross is clear: If He would not have died for those who place their faith in Him all would have to receive the punishment of eternal hell and the wrath of God forever. Though more may be said about this, I want to know if this all makes sense to you. God bless.
In Jesus Christ,
ONEWAY