It is likely that your financial health will be significantly altered based on whether you choose to make a large purchase on a credit card, such as technology, an appliance, or a vacation. If used properly a credit card can provide reward points, convenience, or purchase protection. This information will help you make the best decision.
Is a credit card the best way to pay for big purchases?
There are three primary benefits to using a credit card for large purchases.
- Most issuers provide fraud protection, dispute resolution, and warranty extensions.
- Normally, a large purchase will provide a cash back or rewards incentive.
- If time before your next minimum payment is due, you can avoid paying interest if you pay the whole amount before it is due, and you have the available cash.
But there are also some disadvantages that you must consider:
- If your use of credit will put you over your limit, you could encounter collateral damage to your credit score.
- Interest rates are high for carrying a balance (generally 2-4% per month).
- Unnecessarily spent and induced debt could emerge under the influence of spending with a high limit.
Experts insights on using a credit card for big purchases
Ramakrishnan Ramamurthy, Chief Delivery and Operations Officer – India, Worldline, express his opinions on using credit card for big purchases, “While a lot of pre-planned one time purchases like a home or a car would be availed through the traditional loans, discretionary spends are associated with credit cards. CC gives the flexibility for a customer to give a short credit period to manage purchases. EMI’s on credit cards enhance this experience by allowing payments over a period of time.”
“Using a credit card for high-value purchases offers several advantages, such as, extended credit period, high rewards or transactions can be converted into affordable EMIs. Cashbacks and other offers by credit card players in partnership with leading brands also offer value to the customers. Drawn by the convenience, flexibility, rewards, cashbacks and ongoing offers, the digitally savvy customers are increasingly embracing credit cards for high-value as well as regular purchases,” said Salila Pande, MD&CEO, SBI Card.
When should you use a credit card?
- With offers for prompt points, or 5% cash back your card has a big rewards rate.
- With the option of repaying the debt before interest gets charged, but needing the flexibility of a short-term debt.
- When it comes to large appliances or electronics, you value warranty protection and purchase.
How to avoid the pitfalls and overspending?
- Zero-Interest EMI option: Several issuers now offer the option of monthly instalment purchases for larger purchases and not charging you interest. If you can guarantee on-time payment, this option creates a reasonable breakdown of the cost.
- Check your credit limit & utilisation: Do a check on the amount of unused credit you still have available before you actually complete the purchase. If you use too much of your available credit, this may negatively impact your credit score.
- Schedule your payment: Plan calendar reminders or auto-debits if you are arranging repayment of the full amount, to avoid forgetting the due date.
What if you can’t pay the full amount?
If pay off is not achievable:
In conclusion, if the purchase will not be financially possible to pay back immediately when it arrives; you may be better off taking a personal loan. Ultimately do what is best for your long term goals, cash flow and repayment strategy.
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Disclaimer:Mint has a tie-up with fin-techs for providing credit, you will need to share your information if you apply. These tie-ups do not influence our editorial content. This article only intends to educate and spread awareness about credit needs like loans, credit cards and credit score. Mint does not promote or encourage taking credit as it comes with a set of risks such as high interest rates, hidden charges, etc. We advise investors to discuss with certified experts before taking any credit.