What is a credit card? A credit card is a plastic or metal card that financial companies give to users which allows them to make payments on goods and services.
Credit cards are a form of loaning that has higher interest charges compared to regular forms of loans. This interest rate is referred to as the Annual Percentage Rate (APR).
Users must pay all used funds every month to avoid paying interest on the outstanding balance. The average APR for credit cards is 18.61% for new users and 15.09% for existing accounts, according to WalletHub.
What are the benefits of credit cards?
Although credit cards have a higher APR compared to conventional loans, they can be useful in your daily life.
The following are some of the benefits of credit cards.
- They can help you save money on your purchases through cash rewards
- You can check your credit score when you have a credit card
- They can help you increase your credit score
- You can use credit cards for reserving hotels and related travel services
- Credits cards can be used for a down payment on houses, car loans, and related transactions
- Having a credit card(s) will look good on your credit report
- Credit cards increase your purchasing power
- They give you a chance to build your credit
- You can get cash from your credit cards. Keep in mind that you will pay a high interest when you withdraw cash from your credit card.
What are the disadvantages of credit cards?
Even though credit cards have a lot of advantages, they have a hidden dark side. Without using them properly, you can end up in a lifetime financial trouble.
The following are some of the disadvantages of credit cards.
- You will pay high-interest charges on outstanding balances
- Easy way to hurt your credit score. Learn more about how your credit cards can hurt your credit score.
- They come with overspending temptations to some users
- Your credit card information can be hacked or stolen
- The 0% APR does not last forever. It is there as bait.
- You have to make payments every month (if you used your card)
- You could pay penalties and other charges if you do not meet the minimum payment requirements
- Charges will be applied for late payments
