Chapter 4, Problem 26AA

To determine

The advantages & disadvantages of paying through cash and credit for any purchase.

Answer to Problem 26AA

Both the modes, either it is in cash or the credit provides the consumer with various merits and demerits and it all depends upon the consumer to decide with which mode he/she finds it suitable to use.

Explanation of Solution

Benefits of purchasing goods and services by paying in cash:

    • The cash payment enables more savings as you spend only the money available in your wallet and don’t go for credit payments.

    • It helps in keeping away the burden and stress of debts.

    • It does not pile up any interest money as happens when people purchase goods on credit.

    • It saves your extra expenses in the form of the fees of the credit cards people use of the companies.

Drawbacks of purchasing goods and services by paying in cash:

    • There is a limited purchasing opportunity to the buyer as the money he holds in hand is usually limited.

    • Lack of record keeping of the payments done in cash. As when it is done through credit cards, people have the record of payments they are doing.

    • Chances of theft, which arise a loss due to money in hand or payment in cash.

Benefits of purchasing goods and services on credit:

    • The very major benefit in credit payments is the more you keep money in the bank and pay the limited sum, the more you are awarded with the interest on your savings.

    • You are also provided with various benefit schemes when using the credit card for the payments.

    • Management of cash flow becomes easier.

Drawbacks of purchasing goods and services on credit:

    • The major disadvantage of credit payment allowance is people overspend so easily.

    • High interest rates have to be paid for the delayed payments made which basically is an extra expenditure for the people.

    • Many fraudulent activities can take place which can put the buyer in huge loss.

Economics Concept Introduction

Introduction:

The payment in cash is basically when we give the money for the goods or services purchased in cash.

Purchasing anything on credit means the buyer is getting something now for which the seller will gain at a later date.