Electronic transactions are the standard in today’s rushed society. Digital payments are becoming increasingly important in people’s lives since they are used for everything from online shopping to paying the bill.
Credit and debit cards are two of the most popular forms of electronic payment. Despite their apparent similarities, there are several important distinctions between the two.
What is the difference between a credit card and a debit card?
Here are the 8 key difference between credit and debit card are:
1. Ownership
The fact that the money in a debit card and a credit card belongs to the cardholder, still there is a significant distinction between the two. By linking directly to your bank account, the money you spend with a debit card is genuinely yours. When you purchase with a credit card, you effectively borrow money from the bank and must repay the loan plus interest.
2. Rating of Financial Responsibility
How healthy your finances are can be gauged in large part by your credit score. It reflects your creditworthiness and affects your ability to obtain loans and other forms of credit. A higher credit score can be attained through responsible credit card use and on-time payments. With a debit card, you won’t have to worry about damaging your credit score.
3. Rates of Interest
Using a credit card is similar to borrowing money from the bank. Credit card interest rates are often higher than personal loans. Credit card to bank account transfer is also getting popular nowadays. In comparison, when you use a debit card, you pay ready cash, and there is no interest to pay.
4. Compensation Plans
You might receive benefits like points or cash back every time you use your credit card. A statement credit, a gift card, or a trip are all possible redemption options for these points. Moreover, credit card reward programmes are more generous than debit card reward programmes.
5. Revolving Credit Limit
You can only borrow up to your credit limit from the credit card issuer. The credit limit is calculated using several variables, such as your salary, credit score, and payment history. Debit card spending is based on the money in one’s account, so there is no tension of spending limit.
6. Prevention of Fraud
Credit cards have more robust protections against fraudulent use than debit cards. The credit card provider will investigate any suspicious charges and reverse them if they are found to be fraudulent. Unauthorised transactions on a debit card must be reported promptly, or the cardholder may be held financially responsible for them.
7. Fees
Credit cards and debit cards alike may incur additional costs. Annual fees, late fees, over-the-limit fees, and balance transfer costs are all possible with a credit card. Overdrafts and withdrawals from ATMs not associated with your bank may incur costs when using a debit card. Still, these charges are typically more reasonable than those associated with using a credit card.
8. Convenience of spending
A credit card allows you to make a big buy all at once, spreading the cost across several billing cycles by converting the spend into EMIs. They can also come in handy in times of crisis, whether it be a sudden need for medical care or car repair.
Also Read: What does minimum amount due on credit card?
A debit card on the other hand can be used just like cash for day-to-day purchases and expenses. One can use a debit card whenever possible when buying necessities like petrol and food. It also helps you keep track of your small spending and help you manage your budget.
In sum, there are significant distinctions between credit cards and debit cards. Credit cards include higher interest rates and fees but also have special incentives and fraud protection. In contrast, debit cards do not affect your credit score, do not accrue interest, but provide fewer perks and less security against theft. Your financial condition and personal preferences should determine whether you use a credit or debit card.
Hope, these distinctions answer the question, “What is the difference between credit and debit card?”
Which One Is the Best Option, Then?
Using a credit or debit card has both benefits and drawbacks, as we have seen.
Here are some situations where both credit and debit cards work well, and you can make a good decision.
- Put away the credit card if you are an impulsive buyer. Instead, use a debit card. You’ll be less likely to rack up credit card debt by purchasing directly from your savings account.
- As you are just getting access to funds that are already rightfully yours when making a debit card withdrawal, no fee is incurred. On the other hand, if you use your credit card to get cash, you’ll be taking out cash that you don’t have. The bank will treat this as a loan and want a very high-interest rate.
Although both credit and debit card have their pluses and minuses, it’s the credit card that can be a tension-free option, provided you use it responsibly.