There is no clear answer when it comes to defining what is better: whether to pay in cash or pay in installments. But, at Globe Live Media we detail the advantages and disadvantages of each option when buying in the US, so you know how each one affects your personal finances and your credit history.
Pay in cash or pay in installments, that is the question. On the one hand, paying in installments can lead to special financing offers and even rewards, but at the same time, it can cause your debts to increase. On the other hand, paying in cash allows you to avoid debt, but your consumption capacity will probably be reduced because you cannot afford to buy things that, perhaps, you could only obtain with financing plans such as the so-called “Buy Now, Pay Later”. ” (Which in Spanish means “Buy Now, Pay Later”).
It may be that there is no definitive answer to which one is better, but, from Globe Live Media, we can help you discern the advantages and disadvantages of each form of payment in the United States, so that you make the decision that best suits you.
Advantages and disadvantages of paying by installments in the US
When you decide to make a purchase that you pay in installments, you are essentially borrowing money with the promise of paying it back in a specific amount of time. These are some of the advantages of this method of purchase, according to Experian, one of the most important consumer credit reporting companies in the US.
Advantage
1) You can separate the payments, which allows you to make purchases without tying all your money to a single operation that can unbalance your budget. Monthly installment payments, in fact, can make big purchases more manageable, and in some cases, like buying a home or a car, it may be the only way to get them.
2) You can get rewards through the purchases you make with your credit cards, the installment payment instruments par excellence. These rewards consist of points that you can redeem for travel or that you can use to lower the costs of other purchases you make.
3) Paying in installments, on time and on time, can make your credit history develop and grow, as it shows your creditors that you have enough responsibility to handle loans in the future.
4) By not having all your money committed, you can redirect part of your funds elsewhere, such as the financial markets, where you can generate profits, or a savings account, where your money can be nurtured by the returns offered by financial markets. banks.
Disadvantages
1) Paying in installments can actually make purchases more expensive than paying in cash. Unless you use a credit card with an introductory period of 0% annual interest (APR), you will probably pay interest on the purchase, increasing your debt.
2) In the same way that it can contribute to your credit history, if you are not careful and responsible with installment payments, your credit score will decrease. But not only because of not meeting your financial obligations, but also because your credit use ratio will increase if you only make installment purchases. It is precisely this that can harm your credit history.
3) If you pay interest on a lot of financed purchases, you probably have less money to set aside for an emergency fund, future expenses, or retirement savings.
Advantages and disadvantages of paying cash in the US
Paying in cash usually involves making large disbursements in a single operation and, like installment payments, has its pros and cons.
Advantage
1) Paying in cash can save you money, since the money you disburse at the moment is the total of the operation, without additional costs for interest.
2) You won’t increase your debt, and you won’t spend money you don’t have. This can reduce your financial stress.
3) It won’t negatively affect your credit score, so you won’t have to worry about credit checks, monthly payments, or an increase in your credit usage ratio, three factors that can, in fact, cause you to lose points.
Disadvantages
1) As you can guess, paying cash will not positively affect your credit history either. This means that your cash payment transaction will not be reflected in your credit report.
2) You will not earn rewards for your purchases, unlike payments made with credit cards.
3) It can increase your lack of money because cash payments involve much larger disbursements.
Once you know this, what do you prefer: Pay in installments or pay in cash?