Debit cards and credit cards are used to make payments for purchases at offline and online stores. In addition to retail stores, people also use them to pay at fuel stations, coffee stalls, food outlets, cab services, etc. People use both cards, but only a few know the difference between them.
A debit card is linked to your bank account, and you can use it to withdraw cash from an ATM. Every time you use your debit card, the amount is deducted from the bank account. A credit card offers you access to credit and lets you use the money for purchases and pay it later.
With a debit card, you spend money from your funds, while a credit card enables you to borrow money for purchases and repay it within a specified time period. Let us explore more differences between credit and debit cards and how you can use both for your benefit.
Before knowing the differences, let us first know how debit and credit cards work.
How Debit Cards Work?
A debit card is basically a plastic check that allows you to buy something and takes the money out of your bank account. If you try to spend $1000, but you have only $750 in your account, the transaction will be declined by your bank. As the money is debited from your account as soon as you swipe your card, you are not charged any interest and don’t get any bills. Debit cards can also be used to withdraw cash from ATM machines.
How do credit cards work?
When you get a credit card from a bank, you get approval for a certain credit limit, also called the line of credit. You can make purchases of value upto your credit limit, and once you reach this limit, you cannot use the card for more purchases in the current month.
If you have a credit card, you will get a bill from the issuer every month. You can use the card to make both online and offline transactions within your credit limit. Now, as you understand the basic purpose of a debit card and credit card, let us explore the difference between both these common types of payment cards.
Time to pay the amount
While using a debit card, the amount is deducted from your bank account. There should be a sufficient balance in your account to use the debit card for purchases. If the value of the purchase is more than the balance in your account, the bank will decline the purchase. However, you don’t need to have a balance in your account to use a credit card.
When you use a credit card, the card issuer offers you a time period of at least 30 days to pay the amount. If you pay after 30 days, the interest is charged as per the interest rates of the card issuing bank or company.
A credit card is better for some transactions.
Some companies, such as car rentals or hotels, require credit cards to make reservations. Some providers, such as Gas stations, may have greater security risks, making credit cards a safer option as you don’t have direct access to your bank account. And if you want rewards, you must use a rewards credit card. In other cases, debit cards can help avoid excessive fees or expenses.
Statement of Transactions
Transactions are noted on your bank statements, but there are no separate statements for the debit card. Your credit card company sends you a statement of the transaction each month where you can check the purchases and spending done with the card. You can see the amount spent and the total interest charged on your amount in the statement.
Interest Charged on Cards
When you use a debit card, there are no interest charges as the amount will be debited from your bank account. In the case of a credit card, if you don’t pay the bill on time, you will be charged interest. Therefore, if you use a credit card, you should know the due date and pay the bill on time to avoid paying the interest or late payment fee.
Using a debit card means you can’t spend more money than the balance you have in your account. If you want to control your spending and avoid unnecessary spending, a debit card is for you. However, in the case of credit cards, most users are not able to control their spending.
If you’re using a debit card, you may need to enter a personal identification number (PIN) to authorize purchases. If you lose your card, you can temporarily block it via mobile or online banking. If your credit card balance is not withdrawn immediately, you may be protected from fraud or theft.
If you lose your card, you can temporarily block it via mobile or online banking. Some credit card issuers also offer you the facility of chargeback, to enhance the protection on fraudulent purchases. Chargebacks are beneficial for users but not for merchants. Therefore, merchants use the payment processors that help them avoid chargebacks.
Liability if the card is lost
There are some situations when your card can be lost or stolen, and the bank or issuing company may charge you for the same. If your debit card is lost or stolen, the bank may not charge you anything even if the founder makes purchases by using the card. However, in the case of a credit card, the bank or issuer may charge you with some charges. It is essential to inform the bank immediately about the lost card as soon as you come to know that the card is missing.
Which Card Type is Best for You?
The type of card that will be best for you depends on your spending habits and usage. If you think you will be tempted to spend more on a credit card, a debit card is probably your best bet. However, if you are used to staying on a budget, getting your balance paid on time and in full each month, earning rewards, and increasing your balance, a credit card might be a good option.
Or maybe you prefer to use a debit card for everyday purchases but want to have a credit card in your wallet for emergencies. Ultimately, the card you use in a given situation should be the type you are most comfortable with based on the money available and the way you prefer to manage your finances. Regardless of which card type you choose, it’s important to understand how it works, what your payment responsibilities are, and what fees may be associated with it.