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Cash vs. Credit Card: Which is Better Option?

In a developing country like India, ‘cash only’ has been the mantra for people for many decades until now. The digital era has brought a new option in the form of a credit card. It’s not like a debit card, or credit card has made a new financial debut in India, but the digital age has made the apply for credit card more popular in the country.

While cash has defined its role in the Indian economy for a long time, the new generation is looking for a better option in the form of a credit card. This has also given rise to a new debate as in cash vs. credit card, which one is the better option?

So, let’s consider some of the contradicting factors in opting for cash vs. credit that is given below:

5 Factors in Choosing for Cash vs. Credit Card

Monetary Convenience

Using a credit card is always more convenient than carrying cash. A credit card makes the monetary transaction faster and provides credit facility to the user as an when required. The universal acceptance of credit cards makes it much more accessible and useful to the user. In the digital age where most of the tradings and business activities are done through online medium credit card plays a significant role as it makes the overall process of payment and transaction very easy for the user. Apart from that, a user can avoid paying an interest rate for credit taken by paying your balance before the end of the grace period.

Cash is a traditional financial instrument that is used for the monetary transaction of goods and services. To date, it has been considered as one of the most convenient media for making payments. Whether it be making payments for any goods or services cash is acceptable to all provided, the only exception of cash is that it is more convenient within the domestic region and cannot be used in the online transaction. Real cash is easy to spend and can also be managed easily. Moreover, if compared to a credit card, it will neither give you the credit facility, and its geographical boundaries also limit its convenience.

Spending Ability

A credit card always provides you with the option of a credit facility, which boosts the purchasing power of the consumer. At the same time, using a credit card not only makes the monetary transaction faster but also relieves you of the burden of moving around with a bunch of cash in your pocket. The only risk involves using a credit card is that it can increase the chances of overspending and can lead one to a debt trap. However, the situation can be avoided if one remains conscious about there spending and pay the interest on credit within the grace period.

Cash, on the other hand, limits the spending capability of the user. It may not give you the additional power of purchase like a credit card but can be managed well, and a person can avoid the risk of overspending. These may also help you in preventing debt traps and as there is no credit facility.

Rewards and Offers

The trend of online shopping has made the idea of rewards and bonus points more popular among consumers. These days you will find a lot of banks providing additional offers and bonus points on using a credit card. The concept of offers has not only been limited within online shopping, but you can now avail of an additional bonus point whether you use your credit card for booking a hotel or an airline ticket.

The reward facility also works with a cash transaction. The trend of proving cash benefits is high among the brick-and-mortar store if compared to the online market. Also, the advantage of using cash as low as it does not come with any other cashback offers. Moreover, using a credit card offers more versatile reward points to the user than any specific royalty program of the retailer.

Level of Security

The consumer financial protection bureau and credit card fraud protection policies protect your credit card against fraudulent charges. In case the credit card gets lost or stolen, the bank will provide a new credit card to the user and, at the same time, will take necessary steps to retrieve the missing credit card. Using a credit card also saves the user against fraud protection and provides coverage against purchases where a product is damaged.

Actual cash has zero or no security. If your cash gets lost stolen, then the chances of retrieving the same are minimal. It neither gives you the option to claim nor helps you in resolving the issue except for the fact that one has to consider that they have gone out of luck. In terms of the level of security, cash is no match for a credit card, and in terms of making a transaction, it does not gives you the option to challenge the merchant in case of any dispute.

Building a Good Credit Score

Using a credit card can help you to build a good credit score. Especially if you are looking to borrow money for buying a house. Having a good credit score can also help you in getting faster loan approval from a lender.

Cash, on the other hand, doesn’t help you in building a credit score because it does not come with the option of credit facility. So using cash will not only limit in making a good credit score but also eliminate the future possibility of getting a faster loan approval as a good credit score is considered as one of the essential factors for loan approval.

The Bottom Line

The use of cash vs. credit card depends on the financial condition of a person. Each of the options comes with its own set of advantages and disadvantages, but standing in the digital era, a credit card is more convenient when compared to cash. From spending ability to the level of security credit card always gives an extra facility to the customer. However, in developing countries like India, the usage of cash is still widespread among the people. And despite its limitations, it will eventually turn the roulette and will set a course for a new digital economy.

Ajeet Sharma, the founder of Financegab and a well-known name in the field of financial blogging. Blogging since 2017, he has the expertise and excellent knowledge about personal finance. Financegab is all about personal finance which aims to create awareness among people about personal finance and help them to make smart, well-informed financial decisions.


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