Credit cards have both advantages as well as disadvantages.
With its usage, the benefits are more than the downsides. The Credit cards advantages include instant money, rewards, offers, and convenience. However, it has constoo, which include temptation for shopping, overspendingas well as credit score damage.
To help you choose the RIGHT CREDIT CARD best suited to your needs and requirement while clearing understanding of the risk, Credit Dunia has put together a list of the biggest pros and cons of credit cards. We hope that this will make it clear for responsible credit card use.
Biggest Pros
Instant Money
One of the biggest advantages of a credit card is that it is a source of instant money. In case you do not have money in your account, you can use a credit card as a type of short-term loan which can be rapid at a later date as per your choice.
Convenience
A Credit Card is very easy to carry as compared to cash. Instead of the hassle to carry large sum of money in cash for heavy purchases, you just need a single card.
In this era of digitalization, credit cards play a pivotal role as they be used in most of the online shopping websites very easily.
Even if your card is lost or stolen, you aren’t liable for any unauthorized charges and therefore won’t lose any money.
Improve Credit
If you use your card properly, the positive information reported to the credit bureaus will allow you to build or rebuild solid credit history. As long as you have an open account that is in good standing, positive information will appear on your credit reports every month.
Easy EMI
With the help of Credit Cards, it is very easy to purchase costly items without putting stress on your account balance. Also, the amount can be converted into easily installments like 3, 6 ,9 and 12 months EMI as per convenience.
Rewards point
Many credit cards provide rewards in the form of cash back, airline miles or hotel points . These rewards subsidize the cost of purchases and can be traded for unique amenities. Some reward cards also offer discounts and exclusive access to shows, VIP treatment in airports and hotels; concierge services; special gifts; and much more.
Offers
Every credit card offering bank has tie ups with various companies which helps them in giving various offers to its customers in the form of cashback, gifts or gift coupon. These offers can be used at the time of purchasing. You may compare different card features and offers on Credit Duniaand chose the card that provides your maximum offers.
Biggest Cons
Over usage of credit limit
Many people view their credit cards as other forms of income, and shop based on their desires rather than necessities. Habitual overspending with a credit card will leave you with expensive debt. You graduallyfail to make monthly payments, putting you at risk for delinquency and collections.
High interest rate
Every credit card have different interest rates at the time of non payment which may range from 2%- 3.5% monthly.If it is 3% monthly that equals 36% annually.Credit card APRs are high compared to most other interest rates you’ll come across. For comparison, auto loan interest rates tend to range from around 8% to 9%Annually. That’s why you should pay credit card balances in full whenever possible.
Temptation for shopping
If you have your a credit card in pocket , it creates temptation for shopping; even if you don’t require that items for use. This in turn createunnecessary debt to be paid for next few months.
If the information is negative, including missed payments and high credit utilization, for example – your credit score will suffer. Credit score damage will make it harder to get good rates on future loans.
Deferred Interest Loan
It’s become common practice for retailers to advertise 0% introductory interest rates on their store credit cards for extended periods of time, with a catch called deferred interest. If you don’t pay your EMI on time , it is end of the 0% intro period, or you’re late with a monthly bill payment along the way, the 0% rate goes away.
At the end
Credit cards have both advantages and disadvantages, but they still do more good than harm at the end of the day. When used responsibly, a credit card can help you build the credit history needed to get a new loan. It can lower the price of everything you buy, thanks to rewards and offers. Furthermore, the credit card market is as consumer-friendly as it’s ever been, thanks to the RBI regulation.
