Credit cards offer instant access to cash, rewards and cashbacks, extended warranty on certain purchases, complimentary insurance and a host of other benefits that you can’t enjoy when using cash.
In this article we take a closer look at these benefits and features to fully appreciate why consumers prefer credit cards to cash.
What is a credit card?
A credit card is a card that allows the holder to purchase goods or services on credit. Most mainstream lenders offer a wide range of credit cards at varying rates and for various purposes.
Credit cards offer a revolving line of credit up to a set limit and allow holders to make use of this credit on an ongoing, revolving basis. To maintain a credit card you must make, at the very least, the minimum monthly repayment which is a percentage of your outstanding balance.
A convenient credit solution
Credit cards can be obtained from banks, businesses as well as other online lenders. You can use a credit card to pay for anything you can pay using cash but with added benefits such as being able to make online purchases, rent vehicles, book hotels and get a range of rewards for your everyday spending and travelling. A credit card allows you to buy things even when you do not have money, so long as you remain within your credit limit.
How does a credit card work?
It's simple, a credit card lets you spend on credit. A credit card has a pre-set limit which might be several thousands of Pounds, depending on how confident your card provider is that you’ll pay it back. When you manage to fully pay your outstanding balance, you won’t pay interest on what you’ve borrowed.
However, when you make cash withdrawals the interest rate is usually charged daily from the day you make the cash advance until it is repaid in full. Furthermore, when you do not pay any outstanding balance in full then interest will be charged.
The advantages of a credit card
- Easy to carry, easy to use – you can use your Visa or MasterCard credit card just about anywhere just as you would a debit or cheque card.
- Credit cards are safer than using cash – when you have lost your card, you can simply call your credit card provider and cancel it. Furthermore, you’re much more likely to get the money back if it’s stolen and used fraudulently as there are a range of insurance policies that are automatically part of almost any credit card package.
- Buy now, pay later – a credit card gives you extra cash when you don’t have the cash you need until your next payday. What's more is that when repaid in full as credit card is much cheaper than a payday loan.
- You’re protected – when you use a credit card, you are protected for most purchases over £100 and up to £30,000. Section 75 of the Consumer Credit Act allows you to use the card company to cover the cost if you have booked a holiday and the provider goes out of business.
- A credit card often offers exclusive rewards such as air miles, reward points, and cashback. Each bank offers their own points system and has their own partner retailer which is why it's important to compare credit cards before choosing one.
Benefits of credit cards
- Credit cards work in any currency – when you have a credit card, it is easy for you to purchase things in a foreign country. Although you will be charged a currency conversion fee, some cards don’t charge a currency conversion fee in certain stores and countries.
- Owning a credit card can also boost your credit score – you can only boost your credit score if you pay off the balance in full every month and keep your spending at or below your credit limit.
- When you have a credit card, it simply means you have less cash on hand – credit cards are not only convenient for some people, but they are also safer.
- It is safe to shop online with a credit card – most credit cards are covered by different layers of security and fraud protection. When you use it to shop online, you’re facing a much lower risk of losing your money.
- Credit cards have price protection insurance and purchase protection insurance – price protection insurance is insurance that takes care of the difference to your credit card account if a product you bought has dropped in price. Whereas purchase insurance covers new items that you buy against theft and accidental damage for up to six months from the date of purchase.
Advantages of paying cash
One of the biggest advantages of using cash is that you are limited to the money you physically have in hand. Furthermore, when you do not have money in your wallet, you will not able to just spend your savings. Using cash for almost everything you do can help you stay out of debt.
Disadvantages of paying cash
Using cash forces you to carry money and, a lot of it. Walking around with money is risky. Money is unlike a credit card which, when it is stolen, it will never be recovered, and you will be left stranded.
You will not earn any points or rewards when using cash and, you may actually be charged a cash withdrawal fee to get your hands on the cash. Another disadvantage of using cash is that it is difficult to keep track of what you’re spending the money on unless you keep the physical receipts.
Credit card disadvantages
Paying your bills with a credit card can cause you to exceeded your limit. A credit card can very well become addictive. Using credit allows you to also buy items you did not budget for.
Most importantly a credit card can also affect your credit score. If you pay it well it will boost your credit score but if you are a bad payer, it will decrease your credit score and can result in a bad credit history.
Consumers still choose credit cards over cash
Although credit cards have their disadvantages, they are still a much better option than carrying and using cash. When you lose your credit card, you can cancel it and take out another one.
You can earn rewards and cashbacks on your everyday spending or enjoy exclusive cardholder benefits and memberships. Credit cards allow you to access instant cash and keep track of what you're spending your money on.