- Personal Finance
Buying on credit - the risks and the benefits
The relative risks and benefits of buying on credit have to be seen in two cases: buying on credit in a business and buying on credit for personal needs.
Virtually no business ever runs without some credit terms or other. Buyers of goods and services mostly insist on suitable credit period for repaying. Such a credit is normally negotiated by smart buyers without giving suppliers any scope to jack up the prices on account of credit period. So, money not spent during the credit period is available for the buyers to turn it over in their business, it saves them interest and earn profits too..Deferred payments are always useful for better financial planning. When financial difficulties surmount, you can always try to negotiate with suppliers to either defer the payment still further or to pay in installments, should the situation demand so. Suppliers are mostly cornered in such situations, and they are mostly left with little option but to concede.
In trading businesses, many retailers buy on credit and sell on cash. It is by far one of the well established practices followed by traders to make good money.
On the flip side, sellers on credit may use smart methods to jack up the price to compensate the interest loss in some way not noticeable to buyers. In case of buyers who delay payments and play hide and seek beyond the credit period, the sellers will wait for the right time to ditch the buyer or cause extreme inconvenience to them at a critical juncture by delaying deliveries; they may try to make up the erosion of profit by creating an artificial scarcity to jack up prices.
Credit cards are one of the most widely used facilities to purchase goods on credit by individuals. As long as one's personal financial status is good, the best practice would be to pay the credit in full on the due date, thereby fully enjoying the interest in credit period. On the other hand, if one chooses to pay only in part and defer the rest of the payment, the interest charged by credit card firms is very hefty. The more one defers and breaks up the repayment, the more one loses on excess interest paid.
Credit cards tempt people to buy items far beyond their means and innumerable people get into serious credit traps due to lack of self control and financial discipline. People who fail in repaying their credit card dues lose their credit rating and it creates problems in future when they have to seek loans for more serious purchases like a house or a car.