Using Credit Cards Vs Refraining From Loans

Running head: USING CREDIT CARDS VS. REFRAINING FROM LOANS 1

Using Credit Cards vs. Refraining from Loans

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USING CREDIT CARDS VS. REFRAINING FROM LOANS 2

Introduction

The use of credit cards has become the most common way of purchasing products

recently. Credit cards allow the consumers to purchase goods and services and make payments

later within an agreed period of time. As such, the consumers using the cards are offered short-

term loans. While some people prefer the use of the credit cards, others do not like any form of

loan and thus, they make cash transactions when purchasing goods and services. While

purchasing refraining from loans has several advantages, a person using credit cards is better off

than someone that makes purchases on cash basis.

Discussion

Using credit cards offers more shopping convenience than making purchases on cash

basis. A consumer using credit cards is not as limited from making purchases as a person using

cash (Gerver & Sgroi, 2010). Consumers are allowed to make purchases for numerous products

using credit cards as long as they have the capacity to pay for them as agreed. However, a

consumer purchasing on cash basis can only use what they have on hand. The amount of cash on

hand may not always be enough for purchasing all the required goods. In addition, the credit

cards eliminate the inconvenience of carrying cash (Gerver & Sgroi, 2010). Enhancing consumer

convenience increases comfort when making purchases using credit cards than when using cash.

Second, using credit cards significantly reduces the risk of loss. When a credit card is

lost, a consumer pays a small fee to get another one. In some cases, the card issuers replace the

lost cards free of charge. Furthermore, liabilities occurring from fraudulent transactions that are

not authorized by the card holders are limited. In the US, the liability to the card holders is

limited to $50. In some cases, the consumers are not charged anything (Guseva & Rona-Tas,

2014). Conversely, the likelihood of recovering cash when it is lost is very low. In addition,

USING CREDIT CARDS VS. REFRAINING FROM LOANS 3

people that carry cash around are exposed to the risk of theft. The chance of recovering cash lost

through theft is very low. Thus, the relatively lower risk of loss associated with the use of credit

cards is important.

Third, credit cards cover the consumers for the transactions made during emergency

situations, a benefit that people using cash may not always experience. While a consumer using

credit card can pay for services and products any time, cash may not be always available on hand

to make emergency transactions (Dholakia, 2016). Further, using credit cards improves a

consumer’s credit score, which is relied upon by some financial institutions when making

decisions to give loans. Last, the consumers using credit cards are sometimes given rewards by

the companies that sell products, which are not available to those who use cash.

One of the main issues raised against the use of credit cards is that they encourage

overspending and spending on unnecessary products. As found out in the study conducted by

Runnemark, Hedman and Xiao (2015), it is true that the consumers that use credit cards tend to

spend more than those that make cash purchases. However, conscious development of good

shopping habit can help to prevent the problem. Second, interest charges are added when a

consumer fails to make payments in time. However, making payments as agreed helps to prevent

the charges.

Conclusion

In conclusion, using credit cards is a more convenient way of making purchases than the

use of cash. As explained above, the risk of loss when using credit cards is also relatively lower.

In addition to the two benefits, the ability to make purchases in emergency situations,

improvement of credit score and access to rewards make the use of credit cards better than the

use of cash. People using cash rarely access such benefits. The few issues associate with the use

USING CREDIT CARDS VS. REFRAINING FROM LOANS 4

of credit cards, such as the possibility of overspending and incurring interest charges can be

avoided.

USING CREDIT CARDS VS. REFRAINING FROM LOANS 5

References

Dholakia, U. (2016, January 11). Does It Matter Whether You Pay With Cash Or A Credit Card?

Psychology Today. Retrieved from https://www.psychologytoday.com/blog/the-science-

behind-behavior/201607/does-it-matter-whether-you-pay-cash-or-credit-card

Gerver, R. K., & Sgroi, R. J. (2010). Financial Algebra, Student Edition. Mason, OH: Cengage

Learning.

Guseva, A., & Rona-Tas, A. (2014). Plastic Money: Constructing Markets for Credit Cards in

Eight Postcommunist Countries. Stanford University Press.

Runnemark, E., Hedman, J., & Xiao, X., (2015). Do consumers pay more using debit cards than

cash? Electronic Commerce Research and Applications, 14(5), 285-291. doi:

https://doi.org/10.1016/j.elerap.2015.03.002.

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Using Credit Cards vs Refraining from Loans

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