Advantages, Disadvantages of Credit Cards

Credit cards offer several benefits to merchants and cardholders.

Benefits to merchants:

Credit card transaction processing directly impacts a business’s ability to provide convenient and secure payment options for customers, which can affect sales, customer satisfaction, and overall growth.

Enhanced customer experience

By offering a simple, convenient credit card payment experience, businesses can meet the evolving needs of their customers, leading to increased customer satisfaction and loyalty.

Increased sales and revenue

Credit card payments can boost sales for businesses by lowering the barriers that customers face when making a purchase. Generally, customers spend more when using credit cards compared to cash. By accepting credit cards, businesses remove this limitation and enable customers to make larger purchases

Improved cash flow

Credit card transactions are typically settled and deposited into the business’s bank account within one to three working days, resulting in faster access to funds compared to other payment methods such as cheques.

Convenient method of payment

Consumers are always looking for fast service and a convenient method of payment. Credit cards do this and more. All it takes is a quick swipe or tap of a phone to complete a transaction. And yes, additional perks like reward points, cash back, airline miles, etc. further encourage them to use their credit cards for purchase.

Simplified accounting system

Processing cheques, managing accounts, and visiting banks involve a lot of time and money. Credit card payments are automated and hassle-free. The sales details of goods sold through credit cards are available with the bank statement. Further, the system of credit card payments is automatic and doesn’t involve the dispatching of invoices. This helps to reduce costs by saving on expenses like postage, paper, printer, and extra workforce.

 Secure and compliant transactions

A strong credit card processing system helps protect both the business and its customers from fraud and data breaches by adhering to security standards such as PCI DSS. This compliance is important for safeguarding sensitive customer information and maintaining trust.

Competitive advantage

Accepting credit card payments and providing a simple payment experience can give businesses a competitive edge over competitors that do not offer these options, helping them attract more customers and increase their market share.

Reduced risk

By accepting credit cards, businesses can minimise the risks associated with handling large amounts of cash, such as theft, loss or mismanagement.

Advantages to Credit-cardholder

Simple ways to pay

The cardholders don’t have to worry about how much cash they have on hand. A Credit Card is one of the simplest ways to pay for anything – no more counting out change or writing cheques etc.

Recurring payments:

While Credit Cards are great for one-time payments, you can also set it up to automatically make recurring payments such as your phone, electricity, or gas bills. No more will there be a chance of forgetting to pay bills on time and facing penalties or disconnection.

Extended Budget

With a credit card in hand, the cardholder is not bound by SB balance. If there’s a sale coming up on your favourite brand and card holder can always use their credit card to shop without worrying about budget constraints. And in case the spending is too much, the cardholder also gets the option to break his spending into convenient EMIs.

Interest-free credit:

 A Credit Card comes with a grace period between purchase and payment (could be up to 50 days) during which the bank does not charge any interest. This is a perfect example of buy now and pay later.

Rewards:

Every time a cardholder makes a payment through a credit card, the cardholder earns rewards. These reward points can be redeemed for exciting gifts and vouchers such as free shopping trips or even free flight tickets.

Cash Backs:

From fuel surcharge waivers to great online shopping deals, Credit Card opens the doors to a host of Cash-back offers especially with selected offline and online merchants.

Pleasant Travel experience:

Many Credit Card issuers make your travel a more pleasant experience with free access to exclusive airport lounges, priority check-in and boarding, extra luggage allowance, etc.

Expense tracker:

Credit Card statements are a great way to track expenses every month since it provides itemised account of card expenditures.

Safer: One of the benefits of a Credit Card in India is that it’s much safer than carrying large amounts of cash around.  No need to worry about pick-pocket or money stolen. If the card is lost, you can get a replacement after you notify your bank.

Credit score:

Credit information companies give credit scores to individuals depending on how prompt they have been in their payments. As the credit score improves, cardholders have a greater chance of getting a big-ticket loan should they need it someday. It’s one of the Credit Card benefits cash or cheques cannot offer!

International transactions:

Credit Cards can be beneficial for international travel as they may offer airport lounge access, enable international transactions, offer competitive foreign currency markup, and allow redemption of rewards against flight bookings or stays and more. The card issuer may also offer travel insurance.

Credit card protection plan (CPP)

Many card issuers offer credit card protection plans (CPP). A credit card protection plan (CPP) is an insurance policy that protects your credit card from fraud, theft, and other risks.

Disadvantages of Credit Card

Overspending

One of the major risks is using the credit card mindlessly by some people. Such Credit card users often spend too much beyond their repayment capability and end up in too much debt over time.

High Interest Charges

In case of late bill payments, credit card providers charge you with high-interest charges that eventually make your debt too high over time. In addition to interest, credit card holders who default on their bills can face other consequences, including late payment fees, frequent phone calls, SMS,  Recovery agents at your doorstep, etc.

Hidden Charges

Surcharges and hidden charges are one of the most annoying things about a credit card. Credit cards are generally fraught with tricky terms & conditions that the cardholder might not be aware of while making a payment.

Cash Withdrawal Limitation

Unlike a debit card, you cannot use your credit card to withdraw cash freely. Credit cards come with a limited cash withdrawal option and even have a high fee associated with it.

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