In everyday language, cash means banknotes and coins. However, cash payments include those made using bank notes and coins as well as payments using debit cards. Thus in a cash payment, money is transferred from the consumer to the selling party immediately or in the near term, and the consumer does not incur a debt to the seller or third parties in connection with the transaction.
Why choose to pay in cash? By paying in cash you ensure you will not be indebted to the seller and, on the other hand, that you are not liable to pay interest to a lender. However, even when paying with cash payment instruments, one is well advised to be cautious. Why? For example, cash payment before the delivery of the product may be risky. If you pay for a product in advance, you forfeit your right as a consumer to withhold your payment, if there is a defect in the product or its delivery is delayed.
Besides cash, payments can also be made using credit. In order to receive credit, you must be at least 18 years of age. Credit and credit cards are usually granted by companies specialising in it. Since paying using credit always involves risks, the lender often wants to ensure that customers are able to fulfil their obligations, that is, repay the credit with interest and expenses. Before paying with credit, it is also worthwhile considering what risks are associated with credit and paying with a credit card.
First, when paying using credit, you need to be aware what credit really means. Credit is money you have borrowed, meaning debt. It must always be paid back. Even though you are able to spread the payment of a purchase over a longer period of time by paying using credit, you must bear in mind that the total credit price is often more than the cash price. This is due to the fact that when you pay using credit, you will incur additional costs on top of the amount borrowed.
The price of credit consists of the amount borrowed, interest and other expenses related to the credit. Credit is therefore never free, and when you make a transaction using credit, you will be indebted to the lender. Before applying for credit, you should therefore consider whether you are able to make the payments in the future. Usually credits are paid back in monthly instalments. Therefore you will need regular income to repay the credit. For example when buying a computer, you should consider whether you could first save up a proportion of the price and only finance a part of the price with credit.
What risks are involved with credit? When taking on credit, you are always taking a risk concerning your future ability to repay, since the credit agreement may bind you for a long time. If you end up being unable to repay credit, in other words a loan that has been granted to you, it may cause you to get a bad credit rating for several years. A bad credit rating can be a hindrance in everyday life, in many ways: it becomes harder to rent a flat, you are unable to make a hire purchase agreement or you will have to pay your phone bill in advance. Hence, taking out a loan is something to consider carefully.Payment instruments