The Pros and Cons of Purchasing with Cash or Credit

A woman paying for fruit with cash

Imagine you’ve had your eye on a new refrigerator for months, and to your surprise, it suddenly goes on sale. This motivates you to buy it, but now you’re uncertain whether to pay in full upfront or use your credit card and spread the payments out over several months. How do you know which option is best?

Each payment method has its own set of pros and cons. For instance, paying with cash (or any non-credit method such as debit cards or checking accounts) means avoiding interest charges and the temptation to overspend, but you may also miss out on certain rewards. On the other hand, credit cards offer flexibility and the opportunity to build a strong credit history, but they come with the risk of accumulating greater debt.

Let’s take a closer look at the key advantages and disadvantages of each payment method to help determine which best aligns with your circumstances and goals.

The pros of paying in cash

For purchases under $25, cash remains king. However, through the end of 2023, only 12% of in-store purchases were made in cash--a 25% decline from 2017. Despite the drop in usage, there are still instances when paying in cash could be a smarter option.

You won’t incur interest charges. In addition to the ease of a once-and-done transaction, you’ll avoid interest charges altogether, so there’s no risk of paying more for your purchase in the long run.

You’re less likely to impulse buy. Using cash helps control your spending because you’re paying with what you have available at the time. It also helps you resist the temptation to blow your budget or make impulsive purchases that may land you in debt down the road.

There’s no impact on your credit score. Paying in cash does not impact your credit score, which can be an advantage if you don’t have a solid credit history or you tend to miss payment deadlines.

Some drawbacks to consider

Your savings may be depleted. Depending on the amount of your purchase, you may be left without enough savings to cover emergencies. Before you buy, make sure you’ll still have enough set aside to ideally cover at least three months of expenses.

There may be no extra perks. Many enjoy the rewards, mileage points, and cashback offers associated with numerous credit cards; incentives you’ll miss out on if you don’t have a cashback checking account or other payment options with added perks.

There’s no impact on your credit score. While paying cash doesn’t hurt your credit score, it also doesn’t help it. If you always pay cash and never show lenders you can also borrow responsibly, it may be harder to qualify for loans down the road.

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A couple shopping for a refrigerator

The pros of paying with credit

Consumers are 40% more likely to use credit cards over cash to make a purchase. In addition, nearly 2 in 5 Americans have used one Buy Now/Pay Later service. The flexibility to delay payment is just one of many reasons consumers are choosing these methods more often.

You can make larger purchases. Using a credit card enables you to make larger purchases and take advantage of certain discounts because you have the option to pay over time, without the worry of depleting your hard-earned savings.

You can boost your credit score. Paying off your monthly balance or making payments on time can help build your credit history, which in turn can help you qualify for lower interest rates and fees, and free up additional money for emergencies and other unexpected expenses.

You have purchase protection. If your purchase turns out to be damaged or faulty, you’ll have some recourse through the purchase protection associated with most credit cards.

Some drawbacks to consider

You may overspend. It’s easier to spend more than you should when using a credit card. While your intention may be to pay off the balance quickly, revolving debt and other pitfalls can make managing credit card debt more difficult and could result in lower credit scores.

You’ll accrue fees and interest. Over time, the additional fees and interest incurred on your card factor into the original cost, so you’re paying more for your purchase in the long run. And with some credit card rates hovering just under 25%, minimum monthly payments may only cover interest, stretching your payment period further.

You can hurt your credit score. Paying on time will help improve your credit score, but paying late or missing a payment altogether will cause it to decline. Once that happens, it can take anywhere from a few months to a few years to repair the damage.

Whether you’re eyeing a new fridge or another major purchase, understanding the pros and cons of buying with cash or a credit card can help you decide if it’s best to pay for your purchase now, or over time.

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