Advantage & Disadvantages of Using Credit Cards: Let’s Find Out

Advantage & Disadvantages of Using Credit Cards: Let’s Find Out

With its handy pay-back choices and ease of use, a credit card has become an indispensable part of our life. A credit card's offers, bargains, and discounts are unrivalled by any other financial product. Credit cards, on the other hand, can become debt traps if you spend more than your credit limit. This financial technique can be extremely dangerous and costly in such circumstances.

If you're unsure whether a credit card is good for you, here's a list of benefits and drawbacks to consider before making your final decision.

Credit Cards Have a Lot of Benefits

The benefits of Credit Cards are as follows-

Credit Cards Have a Lot of Benefits

Easy Access to Credit

One of the most significant benefits of using a credit card is the ease with which you can obtain credit. Credit cards operate on a pay-as-you-go basis. This implies you can use your credit card to make any purchase and then pay off the balance later. Furthermore, if you prefer not to carry cash with you or if a vendor (such as car rental agencies, motels, or airlines) does not accept cash, you can quickly make a credit card transaction.

Creating a Credit History

A solid credit history is important not just when applying for a credit card, but also when applying for other important items like loans or rental applications. Having a credit card and using it responsibly by making monthly payments in whole and on time will help you establish a positive credit history.

The Facility of EMIs

EMIs are a great way to save money. If you want to make a major purchase but don't want to spend all of your savings on it, you can opt to pay it off in easy-to-pay monthly instalments. Using EMIs to pay for an air conditioner, television, or refrigerator is less expensive than taking out a personal loan.

Offers and Bonuses

The majority of credit cards come with a variety of perks and bonuses. These can range from accumulating rewards points to receiving cash back every time you swipe your credit card. These reward points or cash back can then be redeemed for air miles, used to purchase airline tickets or cinema tickets, or used to pay off credit card debt. Some banks and financial institutions in the UAE also provide enticing discounts on credit card purchases, such as free vacations on significant purchases, gratis golf advantages, and a buy one, get one free deal.

There is a grace period.

From the time you receive your credit card bill each month, the bank gives you a minimum of twenty-one days to pay it. That is, if you pay your credit card account in full each month, you will have a maximum of fifty-one days (twenty-one days as a grace period + thirty days in a billing cycle) before having to refund your credit card purchases.

Purchase Protection

Some credit cards include supplementary coverage in the form of theft, damage, or loss insurance for all items. If you want to file a claim, you can use your credit card statement to verify the claim's validity.

Disadvantages of Using Credit Cards

The disadvantages of Credit Card are as follows-

Disadvantages of Using Credit Cards

High Interest Rates

If you do not pay off your credit card balance by the due date, the amount will be carried forward and banks will impose interest. This is how most individuals end up in debt. Keep in mind that credit card interest rates are fairly high, so make sure you pay your bills on time each month.

Wrong usage might have a negative impact on your credit score

Your credit score is entirely determined by how you use your credit card. If you use your credit card for major purchases and do not pay your outstanding credit card dues on time, your credit card will suffer. Because missing credit card payments and persistent debts are documented in your credit file, they might negatively impact your credit score. It may also affect your ability to obtain a loan in the future, as banks normally avoid lending to people with poor credit scores.

Temptation to Spend More Money Than You Have

Because your bank account balance remains unchanged, it may be tempting and convenient to charge all of your purchases to your credit card. This could ultimately lead you to overspending & owing more than you can pay back. With this, the cycle of debt & high interest rate on your future payments begins.

Fees & Charges That Aren't Advertised

Without a doubt, credit cards are convenient to use, but they come with a slew of hidden fees and charges, including late payment fees, renewal costs, membership costs, and processing costs, all of which can burn a hole in your wallet. A penalty may be imposed if a credit card payment is not made on time. Late payments may also result in a reduction in your credit card limit, as well as a bad impact on your credit score.

It's Easy to Get Confused by Terms & Conditions

The lingo and terminology can be confusing to folks who aren't used to reading credit card agreements. Understanding credit card terms and conditions is critical if you want to avoid incurring extra fees and penalties when using the card. By checking over all of the terms and restrictions, you'll also have a better notion of how to avoid credit card costs.

Fraudulent use of credit cards

There's a chance you've been the victim of credit card fraud. With today's technology, another entity could obtain access to personal information and use it to make a transaction on your credit card. Check your credit card statements carefully for purchases that appear unusual to you, and notify your bank right away. If the purchase is confirmed to be fraudulent, the bank will usually waive the charges.

Conclusion

So, if you're planning to apply for a credit card in the UAE, it's critical to weigh all of the aforementioned benefits and drawbacks in light of your unique circumstances. This will assist you in maximising the use of your credit card.

By Om Chaudhary

04-Jun, 2021

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Credit Card Related FAQ

Frequently Asked Questions

  • How to Apply for a Credit Card?

    You can apply for credit card online by visiting Dhanguard and selecting type of credit card as per your requirement. We will further assist you with the process and requirement as per your requirements.

  • What is the eligibility Criteria for Credit Card in UAE?

    According to the UAE Central Bank regulations, any individual should earn a minimum salary of AED 5,000 per month to be considered eligible for credit card. Also, the Debt Burden Ratio of the consumer should not exceed 50%, to be eligible for a credit card.

  • What is the late fees applicable on late payment for Credit Card?

    Late payment fees are charged by banks if the minimum payment due on a credit card is not received on or before the payment due date. It vary from bank to bank but is generally about AED 250 per month.

  • What is Sharia Compliant Credit Card?

    As per the Shariah law, some banks in the UAE offers Shariah Compliant Credit Cards. This type of Islamic credit card stringently follows shariah principles that charges profit rate instead of interest rate as Riba is sternly prohibited as per the Islamic law. Though, Shariah Islamic credit card works similarly like a traditional credit card but with minor difference in the offered benefits.

  • What are the features of Credit Card?

    The credit card has a fixed credit limit, grace period, annual percentage rate, annual fees and bifurcation in offered benefits.