Debit cards and credit cards can be understood simply by the name, where one stands for debit and the other stands for credit. However, many people still get confused about why both are an important part of the transaction. To point out, one must have noticed the similarities of the card like, the tag of the logo that both carries such as Visa, RuPay, etc. On the other hand, both the cards can be swiped while paying in outlets and retails or easily used with the help of the card number, expiry date, and CVV while paying online. In addition to all these, debit card and credit card payment offers also prevail and change from time to time.
Although both the cards seem similar, they differ in various ways that you must know. Source: Ruloans
Now, with these similarities, it is likely for someone to get confused over the uses. So, below are five major differences that will not only help you understand how they vary but also help you decide which card should be used, when and where.
1. Description of the cards
Any of the credit cards can be issued by a bank or financial institution, specially designed to allow users to pay for goods or services over credit usage. This payment is always made by the issuer that is the respective bank or financial institution.
A debit card, on the other hand, is issued by the bank to purchase goods or services using the customer’s bank account and the balance in it. Thus, with a debit card, one will have a direct deduction from their bank account via a debit card connected with the bank.
2. Usage allowance
Despite both, the cards allow a similar mode of transaction, credit cards, in addition, allow a customer to pay later for any purchase. So, if a person runs short of cash or savings account balance, he/she can still purchase things using a credit card and pay later, provided the payment is made within the stipulated date as communicated by the bank. Also, there are various credit card payment offers provided by different brands.
But in the case of a debit card, there is no option to pay later. Thus a person will need to have the specific savings in his/her account so as to use the card smoothly. Although some banks are allowing EMI purchases using debit cards, the practice is still extremely limited.
3. Role of bank account
In order to apply for a credit card, there may or may not be any requirement of having an account with the same bank or financial institution. However, there might be a few specific eligibility criteria.
For the application of a debit card, a bank account in the same bank is a prerequisite. Moreover, the debit must be affiliated to the same account from which the required amount will be deducted while making payments.
4. Limit of amount transaction
In the case of a credit card, the maximum amount is based on the type and rating of the same. This amount is decided by the card issuer only and the customer would not be allowed to increase the limit by himself. However, based on the transaction and credit score, the customer may be offered an increased limit or the likes.
While for a debit card, there would not be any such allowance since the users would only be using the amount which has been deposited as saving or other modes. Furthermore, overdraft facilities are also not standardized for every cardholder.
5. Interest charges
One of the most salient features of the credit card which decides a person’s affordability to have one is the interest rate. While purchasing goods and services, the user may be levied a particular amount of interest on total deduction based on the percentage decided by the bank. In addition to that, the bank may also include fees and additional charges, which is why you will always require to go through the terms and conditions before purchasing via credit cards.
However, one can convert the full amount spent through credit into monthly equated installment (EMI) with provided terms and conditions. For instance, if you want to purchase a smartphone via credit card, you can convert the total amount into EMI and pay a smaller amount for the decided number of months rather than paying full price from your savings. The allowance of credit card payment offers also adds to preference.
For debit card transactions, the bank cannot deduct any other cost as a fee or whatsoever. For instance, if you want to purchase a smartphone via a debit card, you are not liable to pay any additional fee or interest.
Since the present time proceeds at a rapid pace, people are preferring credit card more than a debit card because of the easy credit facility they get from the bank, which saves their bulk amount of hard-earned cash. Also, with the allowance of credit card payment offers by various companies, people find better discounts and attractive benefits. The debit card, on the other hand, is suitable for those who do not want to pay interest and additional charges while compromising with the benefits that come with credit cards.