Define credit card ?what are the advantages and disadvantages of credit card
Answers
Advantages
1. Enables the holder to pay on credit. This card enables the cardholder to make payment at the point of sale even when they don’t have money in their bank account.2. Helps in handling transaction disputes. Most institutions that give credit cards will come to your rescue when there is disputed transaction.3. The card is convenient to use for large amount of money. Unlike the use of cash, which limits the amount you can pay; the credit card can be used to pay large sums of money with no limitation.4. Helps in accessing instant loans. When you run out of cash and you don’t know where to get some money, a credit card will help to get a short-term loan.5. It’s light to carry around. The weight of the card is negligible hence you will conveniently when travelling.6. Helps in tracking your credit transactions. You can get the transactions you have made by requesting for a statement, hence clarifying where you have doubts.7. Increases customer loyalty. The customer tends to love a place they can get credit facilities. This means that they will remain loyal to the financial institution.8. Helps the customer to get Discounts. Many credit card institutions offer discounts to attract people to use their cards. The discount is based on the amount you are purchasing.9. Provides security from theft. Credit cards cannot be used by any other person without the holders’ permission making it difficult for your money to be stolen.10. They help in time saving. You don’t have to waste time going to the ATM to withdraw money to make a payment.
Disadvantages
1. They are prone to fraud. Many people have had their cards hacked and large amounts of money added to their accounts.2. Promotes impulse buying. As long as you have the card, you are prone to buying what you had not planned for.3. Convenient for the literate in the society. The card is given to the rich and the literate living out the poor and the illiterate.4. Can only be used in selected points of sale. The cards are not accepted in all points of sale meaning you will be inconvenienced is some shops or supermarkets.5. They charge some interest on the card. This means that you will have to pay more than the amount you used.6. There are increased chances of financial institutions losing money. If the customer is unable to pay the debt, the financial institution can incur losses.7. Promotes bad credit. Since one can access loans instantly, many people may take too much money that they can’t be able to pay in/on time.8. More cost in case it is lost. When you lose the card, you will have to pay some amount of money to get a replacement.9. Used to pay only large amounts of money. It’s not suitable for payment of a small amount in your neighborhood shop.10. Promotes excessive use of money. Since you cannot see the money being depleted, there are chances that you will misuse your money thinking that you still have more.
Credit card definition can be – it is a plastic card issued by a financial institution that allows users to make electronic and digital transactions on credit. The users are provided a pre-determined credit limit. Transactions and purchases made are deducted against this limit.
The issuing financial institution decides the credit limit based on user’s credit score and income. A user can carry out as much transaction as they want as long as they keep within the credit limit. However, this utilised amount has to be paid back to the issuing financial institution within a pre-fixed period. An interest is charged on the outstanding credit beyond this period.
Advantages of a credit card
A credit card comes with a lot of advantages which include –
Users can withdraw cash from ATM without zero interest charged for up to 50 days. The user will be charged only 2.5 % as processing fee.
A consumer can pay for big purchases with a credit card and pay off the whole amount easily by converting it into EMIs.
They can avail emergency loan by converting the unused credit limit into cash.
Lucrative reward points can be earned on transactions with credit cards. These reward points can be redeemed to earn attractive discounts vouchers and cashbacks on shopping, movie tickets, flight tickets, etc.
Timely payment of credit card bill will have a positive impact on CIBIL score.
Disadvantages of a credit card
User will be charged a high interest rate on unpaid outstanding dues or credit.
A credit card can often lead to overspending substantial accumulation of debt.
Yet, credit cards are among the most beneficial financial tools available in the market. Although credit card definition suggests that it is a debt tool, it can substantially increase the purchasing power of the user. All the cardholder has to do to benefit from a credit card is to plan the finances for accurate repayment of the utilised credit within the repayment period. Doing so helps avoid interest charges and the user is thus able to utilise the line of credit interest-free.
Also See: https://www.bajajfinserv.in/what-is-credit-card