If you are still confused about whether to get yourself a credit card, here are a few advantages and disadvantages that you would like to keep an eye on. Check them out!
1. Low transaction time
Contrary to cash transactions, where you need to be sure about having sufficient funds available, credit cards help in making quick transactions. If you like something, take out your credit card and purchase it instantaneously. These types of fast transactions are not possible through cash purchases.
2. It’s the only choice sometimes
Imagine that you are sitting comfortably at home reading about the new Marvel movie that has just released. All of a sudden, an advert of Daraz.pk pops up showing you a new collection of Marvel shirts that has just come in their warehouse. The advert states in big bold letters “Hurry limited stock.” What do you do? It’s simple! You take out credit card, enter your number and get the item delivered to your home!
3. Enhanced security
Payments made through credit cards was once considered risky business, with hackers scamming customers and rattling business of the providers. However, due to the significant advances in technology, payments made through credit cards have become increasingly safe nowadays. Multiple layers of security plus an automated text message service that instantly sends a text to the holder of the card, as soon as a payment has been made has enhanced the security of this particular medium of payment.
4. Viability in Pakistan
In a country such as Pakistan, where petty crimes and robberies are quite high, credit cards can be used effectively given that they are insured. In other words, if you lose your credit card and someone starts purchasing products through it, you can easily shut it down and get your money refunded without any hassle.
5. Extra perks
Most credit cards offer extremely profitable deals that can help you earn some extra points on each transaction. Apart from this, there are many ways credit card firms reward loyal customers including but not limited to cash back, air miles, extra coupons and much more.
6. Building a positive credit history
If you regularly pay your credit on time and do not miss deadlines of repayment, you can actually build a positive credit history through your credit card. A positive credit history in long run can be highly beneficial and can help you borrow money at low rates of interest.
Just like anything else, credit cards also come with some major disadvantages that you should be aware of. Here are some of the drawbacks of using a credit card.
1. Accumulated interest expense
If you miss deadlines of repaying your loans, you will end up paying interest that can add up very quickly given that it is compounded daily. To show you just how quickly interest can accumulate on your principal amount, have a look at the following example:
Imagine you purchase a product worth 1000rps through your credit card at 2% interest rate compounded daily. Unfortunately, due to some monetary issues you couldn’t make the required payment to your bank for a month. Your total payment after one month (30 days) will be 1000*(1.02)30 = 1,811rps. You will end up paying almost twice the amount you have spent! Yes, you read that right!
2. Negative credit history
Contrary to receiving a high rating due to paying credit card debt on time, credit cards can downgrade your credit rating if you do not pay your debt on time. This will give you a hard time when it comes to borrowing money from a bank, who may increase the interest rate it charges on a loan.
3. You might end up spending more
Credit cards were largely created to indulge you into buying more stuff. Most people often end up buying things that they have no real need for. The concept of buying now and paying later is tempting to most individuals and in most cases leads to over purchasing of products that we may never buy if we lived in a world of no credit cards!