Difference Between Credit Card and Debit Card
Both credit card and debit cards look similar. They are two plastic cards used to carry out cashless transactions and purchase goods and services. However, there are major differences between these two plastic cards in terms of managing spends
Let’s look at the major difference between a credit card and a debit card. When you use a credit card to carry out cashless transactions, the spending amount is reflected on your credit card bill. Here, your credit card issuing bank pays the bill to the merchant when you make a purchase. Later, when you receive the bill from your credit card issuing bank, you pay/transfer the same amount to the bank. If you make the payment on time or before the due date, the bank will not charge you any interest. But in case of delayed payment, your credit card company will charge interest on your spending.
On the other hand, when you use a debit card to perform the same transactions, the card will directly pull money from your savings or current account, and pay it to the merchants. Here, the cardholder spends his/her savings lying with a bank.
Credit Card VS Debit Card
Listed below the major differences between a credit card and debit card as per the following parameters – usage spends, bill payments, fees, and charges, security, and privileges
| Credit Card | Debit Card |
|---|---|
| A credit card helps you borrow money from the card issuer up to a certain limit to carry out cashless transactions. | It allows you to carry out transactions by spending funds from your deposit accounts |
| When you use a credit card, you get a bill or account statement by the end of each billing cycle. | In the case of debit card purchases, your bank will not send you any bill or statement of your transactions. |
| Credit cards only allow purchases, not cash withdrawals unless your card has the cash advance feature and a PIN. | Debits cards allow you to withdraw funds as and when you need them. |
| You need to pay monthly bills to your credit card provider/ company – because when you make a transaction or purchase, your credit | But when you use a debit card for any purchase, the amount gets directly debited |
| card company first pays the merchant for the purchase. You pay the credit card company later. | from your savings or current account. You need not pay monthly bills. |
| Interest charged on the outstanding amount if a credit card bill is not paid within the due date. | It is not applicable in the case of a debit card. There is no outstanding amount remaining against your debit card purchases. |
| A credit card can be closed if you don’t wish to use it further | A debit card usually remains with you till you have an active saving or current account. |
| There are multiple fees applicable such as joining fees, annual fees, late payment fees, and cheque-bounce fees, etc | Only annual fee is applicable. You may be also charged for PIN regeneration fees in case you request a NEW Debit Card PIN. Otherwise, a debit card is issued free of cost when you open a savings account. |
| Here, the credit limit is pre-decided by your card issuing authority. And you can only spend the amount sanctioned to you | You spend based on how much amount you have in your savings or current account |
| You can request your credit card company to extend your credit limit. | It does not arise in the case of a debit card |
| Credit cards come with a lot of attractive offers in the form of reward points, cashback, discounts on Dining, Travel, etc. | Here, the privileges are limited. |
| It may have a major impact on your credit score if you fail to pay your credit card bills on time. | The question of bill payment does not arise. There are fewer chances of having an adverse impact on your credit score. |
| Equipped with enhanced security measures | Contains fewer security options compared to a credit card. |
How Does a Debit Card Work?
A debit card is a plastic card that helps you draw money directly from your savings or current account and make all necessary purchases. By using a debit card, you can perform cashless transactions and avoid the risk of carrying cash or checkbooks with you. A debit card is issued free of charge by a bank when you open a savings/deposit account with it. By using this card, a consumer can avoid the traditional ways of cash withdrawal by writing a cheque and carrying out cashless or contactless transactions online, in POS machines, and mobile applications.
However, there is a daily limit to debit card purchases or withdrawals in many debit cards. A consumer may not be able to make a large purchase with a debit if the daily limit allotted for the card exceeds. You need a PIN to make purchases via debit card.
How does a Credit Card Work?
Like debit cards, a credit card is also a plastic card that helps you carry out cashless transitions. A credit is issued to an individual by a credit card company after checking his/her credit-worthiness. Based on the credit-worthiness of a person, the credit card company will decide the spending limit of a card. If you have a good credit score with a decent monthly salary, there are more chances of you receiving a credit card with a higher spending limit. When you use a credit card to purchase any goods or services, the spending amount gets automatically added to your credit card account as an outstanding balance. At the end of each month or after a period of 30 days, your credit card company will send a monthly bill statement. Now, you have to make the payment against your credit card bill within the due date. In case you fail to do so, an interest fee will be charged on your outstanding bill. Interest charged on credit card bills is relatively higher than interest on car loans, personal loans, or home loans.
However, if you are using your credit card responsibly by paying all bills on time, you can enjoy a lot of benefits like – earning points and rewards, building a good credit report, and a faithful relationship with the bank.
Which one is Better – Credit Card or Debit Card?
Both credit and debit cards have their own advantages and disadvantages. Depending on your requirements, you need to decide whether you need a credit card, or you can manage your financial transactions with your existing debit card, or you need both.
A credit card is a better choice if you have the following requirements –
- If you want to build up your credit history, it makes sense to opt for a credit card and use it responsibly.
- If you are a person who likes to travel, eat outside frequently or spend on fuel heavily, it’s better you opt for a credit card. Nowadays credit card companies provide a wide range of credit cards to meet your specific needs. Also, credit cards always come up with interesting reward programs and other benefits like cash back, air miles, fuel points, free gifts, and discounts which you would definitely enjoy.
- If you want to purchase something by using EMIs, then a credit card is the right option. By using a credit card, you can make a large purchase and pay it off in installments without affecting your monthly budget. However, you may be required to pay an interest fee on the outstanding bill amount along with service tax.
- If you're worried about protection and safety, then a credit card is the right option. Credit cards provide better security in case of card lost or fraudulent transactions. There are fewer chances of unauthorized transactions when you use a credit card.
- If you are a shopaholic person, credit is a better option as many credit cards provide the facility of purchase protection and other benefits. If you are purchasing a product and the product is delivered in damaged condition, you can withhold the payment or raise your concern by contacting your credit card company to get a refund.
A debit card is a better choice if you have the following requirements –
- If you are on a tight budget and worried about overspending; if you are someone who is calculative towards spending and spend within your limit, a debit card is an ideal option for you. Because with a debit card you spend based on your affordability.
- If you want to avoid the risk of high-cost debt, you should opt for a debit card. Because, if you miss your credit card bills, you end up paying high interest on your spending. A credit card is basically a debt instrument, unlike a debit card.
- If you do frequent transactions by using cash, then a debit is the right choice as it allows consumers to withdraw immediate funds from ATMs.
Therefore, based on your requirement, you need to decide whether to choose a credit or debit card