The Pros and Cons of Purchasing with Cash or Credit

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.