Finance

Learn the Difference Between Credit and Debit Card

3 Mins read

Credit and debit cards have made banking transactions extremely convenient and easy. Be it paying restaurant bills, shopping at malls, or booking online tickets, users can handle it all without withdrawing cash from their accounts. Although both cards look the same and offer similar uses, their work significantly differs. In the following sections, let’s find out the difference between credit card and debit card.

What are Debit Cards?

Banks issue debit cards against a customer’s savings or current account. The user can use only the amount available in their bank account. So with debit cards, you make payments for the purchase from your bank balance.

What are Credit Cards?

Credit cards are financial tools that allow individuals to borrow funds from their credit card issuer to make purchases whenever required. A credit card comes with a credit limit, and the user can spend within the predetermined limit. They can repay the borrowed amount in 45 days without paying interest charges on the used amount.

But, interest charges are applicable if you do not pay the bill within the due date.

Major Points of Difference

Here are a few points that make credit cards different from debit cards:

  • Eligibility: Most credit cards have eligibility criteria based on the user’s income, creditworthiness, and existing relationship with the card provider. However, any individual who holds a current or savings account at a bank can easily get a debit card.
  • Credit Limit: Credit cards have credit limits that cardholders can spend to make purchases. In contrast, a debit card user can only spend the amount they have in their bank account.
  • ATM Withdrawals: Withdrawing cash using a credit card attracts interest and withdrawal fees. On the other hand, withdrawing money at a bank’s ATM does not levy any cash withdrawal fee. However, both card types have daily or monthly withdrawal limits that users must stay within.
  • Interest: Credit cards have a 45-50 days interest-free period; with this, users can avoid paying interest on their next bill. Whereas in the case of a debit card, users pay the amount directly from their bank account and don’t need to pay any interest on it.
  • Annual Charges: Most credit cards have an annual fee. However, some specialised credit cards have lifetime-free benefits. Banks don’t charge annual fees or renewal charges on debit cards.
  • Benefits: Credit cards offer several perks, including discounts and cashback that users can convert into gifts or rewards. Debit cards usually do not have such advantages.
  • Usage: Generally, there is no difference between using a debit card and a credit card. However, certain websites and transaction types only allow payment with a credit card. The user swipes the card at a kiosk and enters the PIN to make the transaction. While doing online transactions, they must enter their card number and other details to make the payment.
  • Security Features: Both credit and debit cards have similar security features like OTP, PIN, and SMS notifications. However, many credit cards have zero liability insurance on lost and stolen cards, which debit cards don’t have.

Which One is the Better Option?

As evident, both credit and debit cards have their pros and cons. However, which one an individual should use depends on various factors. These include the following:

Spending Habits: Users who cannot control their spending should use debit cards. Since the money goes through their bank account, they cannot spend more than they can afford.

Cash Needs: Users who make most of their payments using cash should use a debit card, as cash withdrawal using a credit card attracts high charges and interest.

Security Needs: One of the major advantages of credit card is that it is a safer option while transacting online. Blocking the card and reversing the amount in case of fraud is easier than using a debit card.

Big Ticket Expenses: Credit cards offer the convenience of splitting big-ticket expenses into EMIs, making the purchase more affordable for the borrowers.

Foreign Transactions: Most credit cards work worldwide. So, those who make frequent foreign transactions must use credit cards.

Also Read: Guide on Credit Card Statement Balance vs Current Balance

Although there are several similarities between both card types, it’s also important to understand the difference between credit card and debit card. Research adequately, review your spending habits, and assess short and long-term requirements to choose between the two.

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