When making a purchase, consumers often face a choice of whether to use cash or credit. What is the difference between these payment methods, and how do they affect the real cost of the items you buy?
Credit cards can have several associated costs or fees. Some have membership fees that you pay every year for access to rewards or cash back. In addition, credit card providers charge interest on unpaid balances.
Now, you may face new fees for credit card payment processing. A settlement in an antitrust lawsuit involving Visa and MasterCard went into effect Jan. 27, 2013. Prior to this lawsuit, brought by merchants, businesses could not pass on payment-processing fees to consumers. (These generally are fees merchants must pay when a credit card is accepted for payment. The fee usually totals 1 to 4 percent.)
Because of the settlement, merchants now can choose to pass along the payment-processing fees to customers, though it is unlikely that many merchants will do so. If a business does charge the fees, it must post a sign on the entrance saying it will charge the payment-processing fee, and the fee percentage must be disclosed before the transaction takes place. For online retailers, these disclosures must be made before customers enter credit card information and complete the transaction.
Despite the possible fees, you still may want to use a credit card in certain situations because credit offers protections that cash does not. For example, if you book a photographer for baby or engagement photos but never receive the finished pictures, you can dispute credit card charges with your provider and may get the charges removed.
On the other hand, if you had prepaid with cash, you would not have a built-in dispute process and may have a harder time recovering your money, especially if the photographer goes out of business. Cash does not provide the same guaranteed protections as credit.
Nevertheless, paying in cash is fairly straightforward. For example, when you go to a clothing store to buy a $25 shirt using cash, you pay $25 (plus tax) and receive the shirt. The transaction is complete. There are no bills at the end of the month, interest charges, or yearly fees.
Paying in cash also may help lower costs for some businesses. When their customers pay in cash, merchants avoid payment-processing fees. Some may even offer a discount to customers who pay in cash.
Ultimately, you will have to decide which payment method is best for you and your lifestyle. Credit cards often have high interest rates, some have annual fees, and now, some merchants may charge payment-processing fees. Cash has no hidden fees or charges, but has limited protections.
No matter what method of payment you use, remember that the Ohio Attorney General’s informal dispute resolution process (www.OhioAttorneyGeneral.gov/ConsumerComplaint
) may help to recover disputed amounts.