What are the benefits and disadvantages of owning a credit card?by Anita Pedersen Software analyst
Most adults will at some point possess a credit card, due to its inherent benefits. Yet, as with any other financial product there are both advantages and disadvantages associated with using it.
Here we take a look at the most important caveats, which you should be familiar with as a card holder.
Advantages of owning a card
The main benefit of owning a credit card is the access to emergency funds. Many cards are free to possess, and only charge interest when an outstanding balance is incurred over a certain period of time. For that reason they can be brought along on trips abroad, and kept as a type of reserve fund.
Other benefits include such perks as bonus points, cashback and free insurance products. Some cardholders use nothing but their credit cards to pay for daily expenses in order to save up such bonuses. Airline mileage points is a well known example, where card holders are rewarded in the form of free flight miles.
With a credit card you will also be better protected whenever you shop online. Examples include illicit purchases, charged to the card. Unless you’ve been negligent (i.e. by not reporting a card as stolen), you will get a refund for what is lost.
Depending on your country of residence, a credit card may also help you build credit over time. In some countries it’s common practice to scrutinize previous credit card history when determining whether to accept a loan application. This is not necessarily an advantage, but it’s useful to know for those that are affected.
In order to learn more about each card, a prospective card applicant should visit a credit card portal beforehand, such as www.kredittkortinfo.no. Scrutinize the costs associated with each card closely, and keep an eye on the interest free period. E.g. how long you can retain an outstanding balance on your card, before interest charges begin to accumulate.
What are the disadvantages?
A credit card can be a useful tool for responsible owners. The most prominent disadvantage is the high interest (Annual Percentage Rate) associated with outstanding balances.
It is not uncommon to pay interest rates in the area of 20-30 percent per year, which is incredibly steep compared to other types of loans.
Another disadvantage is the fact that you’re incentivized to spend more money than what's necessary. Compared to an unsecured consumer loan, a credit card sits readily available when you visit a store. It can therefore lead to compulsive purchases that drain the household budget over time.
Neither are the product terms particularly favorable, from the standpoint of a cardholder. The downpayment time is short and it can be difficult to change the terms. Some companies are also known to charge draconian overdraft fees if the cardholder is delinquent on a down payment.
Created on Nov 16th 2017 03:12. Viewed 61 times.