Consumer Credit Advantages and Disadvantages

Consumer Credit Advantages and Disadvantages
••• Rayes/Photodisc/Getty Images

Credit in any form comes with pros and cons for consumers and must be handled responsibly for optimal benefits. Credit offers many of us the chance to buy a car or home with financing and mortgage loans or to pay for school or furniture using a credit card or even clothing when we're short on cash but need to expand our wardrobes. Employing consumer credit responsibly benefits many people, but irresponsible use of consumer credit leaves behind enormous debt and anxiety.

Pro: Convenience

Credit is handy for shopping the Internet or eliminating the need to carry around large amounts of cash when shopping, renting vehicles or going out for dinner or other forms of entertainment. Accessibility to credit in emergencies, such as when a roof needs repair or the car needs a new transmission, is the only way many individuals can afford such repairs.

Con: Debt

Unfortunately, borrowing on credit often encourages individuals to spend more than they earn, resulting in debt. A consumer’s care when using credit and ability to pay it off will determine the amount of his debt, which may grow from hundreds to thousands of dollars in a very short amount of time.

Con: Finance Charges

Credit means borrowing money that you don't have readily available. Such loans incur finance charges, or the fee that a consumer is charged for the privilege of borrowing that money. Finance or interest charges must be paid first when a person makes a payment on a credit line, while the remaining payment amount goes toward paying down the overall balance. Finance charges often absorb up to three-quarters of that payment, creating longer payoff times for the borrower. Interest rates are based on the card’s annual percentage rate and a person's payment or credit history. The better the credit history, the better the chance of enjoying a lower interest rate.

Pro: Not Borrowing From Relatives

Consumer credit enables individuals to access funds when needed without having to ask relatives or friends for money. It also keeps them from borrowing from less-than-reputable individuals or companies that charge astronomical interest. Borrowing from friends and family may cause rifts, disagreements and fallout, so having a credit line with a credit card company or lender helps reduce such situations and keep transactions private.