Credit cards are more popular instruments these days. Most people are frequently using credit cards, some people have more than 2 or 3 cards from different banks.
In fact, if you use Credit Cards wisely, it would be more convenient for you, however, some people are afraid of using a credit card because of the higher rate of interest.
In this article, let us understand what are the pros and cons of using a credit card.
What are Credit Cards?
Let us first understand what credit cards are? Actually, the credit card is a type of plastic money which is equivalent to cash (currency notes).
The credit cards are widely accepted and can be used for the purpose of paying bills, online shopping, refuel cars etc wherever cash is accepted, you can use the credit cards.
In fact, it is a type of service offered by the commercial banks in India to their creditworthy customers against an interest charged by the bank if the repayment is not done on the due date.
A credit card has a certain limit which depends upon your monthly salary or income, however, the limit can be increased by having a good repayment history.
Pros and cons of Credit Cards:
Now let’s discuss the advantages and disadvantages of using credit cards.
- The first major advantage of having a credit card is that you don’t need to carry cash of that amount. Let me explain, suppose you have a credit card whose limit is 1 lakh and if you are travelling, you don’t need to carry cash with you which is very risky.
- You have a credit period (grace period) for the repayment of credit card bills and if you do repayment on or before the due date, you don’t need to pay any interest at all.
- You undesirably maintain the record of your expenses/ transactions which can be useful in case of any dispute with any party. By means of which, if any dispute arises regarding previous transactions, then you have documented proof of that transaction.
- You always have a financial backup of ready cash with you provided you utilize it very systematically, otherwise, it could be like a burden on you.
However, there are some disadvantages of using a credit card.
- The rate of interest in the case of credit cards is higher than any other loans/ advances. If the repayment of the credit card bill is not done on the due date, an interest of 36 to 40% per annum will be applicable.
Thus to avoid such complications, you should pay dues of your credit card on time.
The second disadvantage of credit cards is that if you don’t pay the bill on the due date, the rate of interest shall be charged from the date of purchase, not from the due date which is also a major issue with credit cards.
Having a credit card can increase your frequency of purchasing some things or the other because it is a human tendency, if you have money in your pocket, your expenses will automatically increase.
Wrapping Up:
Anything is not absolutely perfect in this world. There has always been both pros and cons of any product or service. Hence, if you have a credit card or planning to take it, you should wisely utilise it to take maximum advantage of the credit cards.