Credit Cards in IndiaFinance » Credit Cards
The use of credit cards started in the United States with the purpose of selling fuel to an increasing number of automobile owners. In 1930s several organizations starting accepting each other's cards. Between 1930 to 1950s, Charga-Plate was introduced in the market and is considered to be a predecessor of the modern credit card. The customer's name, city and state was embossed on this card and a little paper card was placed inside it for the signature of the owner. It underwent several changes and the modern day card was developed in the 1970s. They are now accepted in most of the countries worldwide and have several advantages.
The main concept behind credit remains the same ever since they evolved and that is to 'buy now and pay later'. The credit cards today are issued by various financial organizations to users so that they can buy goods and services and then pay for them to that organization later on either as installments or at one time payment. There are several advantages and disadvantages of using these small plastic cards.
Advantages of Credit Cards
- Convenience: These cards are easy to carry and very convenient to make payments when you are making payments either online or to a cashier directly. You can forget the hassle of carrying a lot of cash if you plan to buy something. This kind of transaction is accepted worldwide and you can easily carry it with you wherever you go. You do not have to carry the currency of the country you wish to travel to if your bank has presence there. If you want to buy something you did not plan, you can easily do that with this card.
These cards have a very good advantage over the travelers checks. When you make payments by checks, the receiver does not know if you would have enough cash to complete the transaction. In case of local customers who have to trade with the merchants frequently, it is easy to find out, but this is not the case with those who are not the denizens of that city or country. They may not be able to do anything in case a check bounces back. The payment is not assured if they check with the bank and come to know that the customer has enough money in his or her account.
- Fast Mode of Payment: The payment by using credit cards is faster as compared to checks. If you pay by a check then it might take more than a couple of days for the amount to be debited form your account. However, using when you are using credit cards the payment is made the minute your card is swiped.
- Making Monthly Budget: You can keep a track of your monthly expenses very easily if you make all the payments from your credit cards and pay back your money on time. This makes it easy for you to see what extra expenses you have incurred in a particular month and how you can reduce them.
- Building Credit: if you make your payments of credit card on time and do not incur debt, even after using your credit card for a long time, it would create a very good impression on your bank. This would be very useful if you apply for loans or rental applications and it creates a good credit history for you.
- Other Benefits: If you do not have ready cash, credit card comes to your rescue in times of financial emergency. However, you need to decide the thin line that separates 'want' from 'desire' and control yourself from over-spending. Some airline and insurance companies allow payments only by using credits. They also provide you cash back offers, bonus points and discounts on your cards. Some credit card companies also provide insurance on the purchases you make. Another advantage is that in case you lose the receipt of your purchase, your bank would have a copy of the transaction and and can provide you with the details when required.
Disadvantages of Credit Cards
- Overspending: the biggest disadvantage of this plastic card is that it tempts people to overspend. The main reason behind this is that you do not require to make the payments immediately. So if you have Rs 1000 and want to buy goods worth Rs 2000, then you can do it easily by using this card. If you do not return this money to the bank on time, you are charged a high rate of interest on it. This can become a vicious cycle and you may not be able to come out if it easily.
- High Interest Rate and Penalties: Another evils of credit cards is that you end up paying a high interest rate on the cards as compared to other forms of credits like a personal loan or a car loan. For example, if a car loan cost about 14 to 15 percent per annum and personal loan costs about 17 to 18 percent, then the users of credit cards can be charged anywhere between 35 to 40 percent. So you need to be very careful while using these cards. Similarly if you are unable to make the payment on time, you are charged with a hefty penalty fee.
- Multiple Credit Cards: If you have more than one credit card, and you tend to use them all, then you can end up missing their last date of payment. It can become very difficult for you to manage them. And if you do not make payments on time, you could end up paying fines unnecessarily.
The advent of every new invention has two sides. A burning candle can be used to provide light and cause your hand to burn if you take it too close to it and a knife can be used to cut fruits and to murder someone; similarly the usage of credit cards depends entirely on you. If you are able to use it properly, you reap several benefits only if you keep a track of your purchases, refrain from overspending and make your credit card payments on time.