Advantages And Disadvantages Of Credit Card : Two free movie tickets per month, rebates, or free EMI on a phone purchase are all options. All of us enjoy this. You are given all of these promotions by a credit card company. Many people would agree that having a credit card is quite important.
You probably noticed the chaos of SBI and HDFC banks in various malls, which advertises the many advantages of owning a credit cards.
The benefits and drawbacks of credit cards will both be discussed in this article. You have to decide whether having a credit cards is important for you after learning about both factors. Now I Tell You About Advantages And Disadvantages Of Regular Credit Card.
Advantages And Disadvantages Of Credit Card
We all want to know about Pros And Cons Of Credit Cards but almost every influencer misleads you and you get wrong information. First, let’s start with the advantages because all the companies tell you about the advantages. So let me tell you the advantages.
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Credit Card Benefits
You can borrow money to make purchases using credit cards, a particular sort of payment card. Credit cards frequently have advantages that can make them appealing to use in addition to the practicality of not having to carry cash when making purchases.
1. Internet Purchases Discounts
When you buy a phone or any other item from the internet, you get to benefit from your purchase. You can take advantage of tempting discounts to save money. Like an additional 5% off of your purchase if you use this credit cards, or free EMI. You can purchase a phone on an interest-free installment plan. Similar solutions are available online.
2. Reward Points
The rewards programme is the second advantage. Every time you use your credit card to make a purchase in the rewards programme, you receive reward points. You can then use those reward points to gain a significant discount on your subsequent purchase. Another advantageous feature of a credit card is reward points.
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3. Employee Benefits
Employees in India who make payments on behalf of their employer receive the third advantage. You are compensated if you make a purchase on behalf of your business. In that situation, using your credit card is the best option because you will receive benefits for doing so.
If you repay the credit card company within 45 days, you won’t have to pay interest and you’ll receive the points and a refund for the money you spent.
In simple terms, you use your credit cards to pay for business expenses; in exchange, the business reimburses you and you receive reward points for the purchase.
4. Transaction Records
Your transaction statements are the next advantage. If you pay cash for everything and worry about keeping track of how much you spent on what at the end of the month, your monthly budget will suffer.
So credit cards can be useful to you. An email statement detailing your monthly spending is provided to you each month. You may quickly create your monthly budget and save money by keeping track of that.
5. Secure Purchase
A secure purchase is the next benefit. When I say “secure purchase,” I mean that the credit card company always pays money on your behalf when you use your credit card to make an online transaction.
Let’s say that after buying the item, you decide to return it because you didn’t like it or it was damaged. then you haven’t made a cash payment. The website and the credit card company will decide how to handle the issue. You can purchase and return the item without paying.
6. Insurance
Insurance is a further benefit of purchasing. On credit card purchases, several credit card companies offer insurance.
The credit card company will repair or replace the item as per the insurance terms if you purchased a phone using a credit card and the company offered insurance on it.
This depends on the type of credit card you have and whether or not your credit card provider offers this service.
7. Convenience
The final benefit is convenience. You do not need to bring cash with you. Everywhere you want to make a purchase, all you need to do is maintain a card on hand to effortlessly make a payment.
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Credit Card Disadvantages
So what are you waiting for? Let’s begin with the disadvantages. Credit cards can be advantageous, but there are also some potential drawbacks that you should be aware of :-
1. High Interest Rates
High-interest rates are credit cards’ biggest disadvantage. It is very important for you to know that the transaction done through a credit card is a loan and the loan is the most expensive one.
If you take out a student or education loan, the interest rate ranges from 10-12%. You receive a home loan with a very attractive interest rate. You can obtain a personal loan of any kind, but credit card interest rates are the highest. It might increase to 40–42% annually.
2. Credit Score
The credit score is the second disadvantage is you have a cibil score, often known as a credit score. Your credit score will suffer if you postpone making your credit card payment. Your future ability to obtain bank loans is determined by that score.
For instance, if you take out a house loan, your interest rate will be greater than others because of your poor credit rating. If you have a low credit score, the bank will not trust you to make the payment on time or not. If you have a credit card, it is imperative that you maintain it. Therefore, it’s crucial that you never postpone paying with a credit card.
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3. Fines And Fees
The next drawback is the various fees charged by credit card companies because if you make a payment prior to 45 days, you won’t be required to pay interest.
Then, it’s not like credit card corporations don’t make any money at all. Because there is a maintenance cost on the card, credit card firms are making money while you are paying them more. You must pay the late fee if you postpone the payment by even one day.
There is a cost involved with moving the limit from one credit card to another. Every charge that the credit card company makes against you is subject to a fee. The transaction statement contains information about this fee. You can check how much you pay the company in fees each month or annually.
4. Terms And Conditions
This makes me think of another disadvantage. This disadvantage is a result of the terms and conditions. The terms and conditions paper is one of many that come with a credit card when you purchase one.
Because the list of terms and conditions is lengthy and published in small print, many individuals fail to read it and fall into the company’s traps.
There are several credit card firms that promise to give you a card with a fixed interest rate. The interest rate won’t go up in the future. That is untrue. The terms and conditions state that they reserve the right to raise the present reduced interest rate if you delay your payments for more than a specific amount of time. In light of this, your interest rate may rise in the future.
A credit card company may be lying if they advertise a credit card’s fixed interest rate. Read the terms and conditions carefully. Because you agreed to the terms and conditions, you cannot sue the business in court. If you failed to read the terms and conditions, it is your problem.
5. Minimum Payments
The next disadvantage is related to the minimum payments. If you make use of a credit card. You would receive a credit cards bill each month. The minimum amount due on the bill is always that amount; it is never the whole amount still outstanding.
When you see the statement, you could think that using a credit card to pay for this amount isn’t all that horrible. Credit cards might be reasonable. But you must keep in mind that the purpose of the credit card corporation is to make money.
In their point of view the lower your payment the more they will earn and you will lose Now you will ask how?
I will tell you. Assume you have spent 10,000 from your credit card and your monthly credit card bill is 500. That is the minimum bill that you need to pay, but the thing is, it is not enough to pay just that. The story starts here If you pay 10,000 bills by paying 500 per month This will take you 20 months plus extra interest.
I have told you the annual interest. Let me tell you again if you have forgotten. It ranges from 35-40%. The more delay you do in paying 10,000the more the company will earn.
The more you will lose. The next time when you receive a credit cards minimum bill you don’t have to pay the minimum bill, instead at priority decrease your credit card debt. You have to pay extra so you can save the interest.
6. Not Used For Investments
The next biggest disadvantage is that you never use your credit cards for investments that will generate income in the future.
What I mean by this is that, for instance, if you take out a housing loan, you’ll utilise the money to build or buy a house. The worth of the house rises with time. You will make money when you sell it in the future because of the capital gain. You may be able to profit from the loan money you invested at home. Therefore, you are ultimately not lost.
Similarly, if you take an education loan. From that education loan your child studies. After their studies, he gets a degree and then a job or he starts doing a business. Ultimately he starts earning. and can repay his education loan from his income.
But if we talk about a credit cards it is a loan that you take to buy groceries or to fill petrol or to buy something from the internet. Most of the time, the item will not yield you anything in the future. Instead, its value will decrease in the future.
If you buy a phone, it depreciates a year early to half its rate. Whatever you buy it’s value depreciates fast. So you are buying items which depreciate overtime and from a loan whose rate of interest is the highest in the world compared to all other loans. So this is not a wise decision.
7. Spend More Than You Earn
You should employ your money to purchase these items, which gets me to my subsequent drawback. You are encouraged by credit cards to spend more money than you make.
If you make $50,000 per year and have a credit cards, your monthly expenses could be more than $50,000 because you always have a fallback. When the funds run out, I’ll use it like a credit card. Whose bill would I be able to pay with my earnings from the following month?
This cycle continues. Thus, using a credit card won’t help you develop better self-control or financial discipline. This is a spoiler.
Advantages And Disadvantages Of Credit Card Last Words
Whatever benefits of credit cards I’ve listed for you, or the next time someone advises you to get an SBI credit card because it comes with two complimentary movie tickets each month.
The question to ask oneself in that situation is, “Do I have the self-control?” that I use my credit card responsibly and only when I stand to gain something from it. Don’t use it when you make a mistake and the business makes money because they want you to use a credit cards because they are the most expensive loans.
The amount of interest due is the highest. Thus, a bank or credit card provider benefits the most financially from credit cards. Therefore, you should practice discipline the next time you obtain a credit cards or if you already have one. If you don’t need the card, closing it is a better choice.
I’ll be thrilled if someone pays me a 30% profit, but if I have to pay someone 30% interest, I’m not getting rich. I’m not making any money off of my investments in mutual funds. Because I am handing the credit cards companies twice as much profit, I gain nothing from doing that.