What is the Difference Between Credit Card and Debit Card?
Credit cards and debit cards help in online and offline transactions. It is estimated that at least 2 in every 5 transactions are carried out by a debit or credit card. In fact, they look the same – have a 16 digit number, CVV number, name of the cardholder and expiration date. But, there are many differences between credit cards and debit cards. Read on to know the differences and compare the pros and cons.
What is a Credit Card?
A credit card is provided by banks and NBFCs to the cardholders with a pre-set credit limit. You can make purchases using credit and repay the amount with interest. Additionally, credit card issuers allow holders to withdraw cash (line of credit, LOC) accessible by ATM or credit card convenience checks. Often LOCs carry higher rates of interest. Every credit card has a borrowing saddle point which depends on the user’s credit rating.
What is a Debit Card?
Debit cards are modes of withdrawals and transactions whereby cardholders can withdraw money from ATMs or perform online transactions. They perfectly substitute carrying physical cash or checks for purchases.
Debit cards have purchase and withdrawal limits beyond which daily transaction is barred. Users can access their debit cards with a PIN, and a small fixed charge might be levied on transactions from ATMs of different issuers.
Benefits of Credit Cards
- Buy Now Pay Later: The most remarkable feature of a credit card is its ability to let users do transactions by paying at a later date. The cost incurred can also be divided into monthly instalments. This greatly encourages the ease of access.
- Interest-Free Withdrawals: Some credit card issuers allow users to withdraw money from anywhere without any interest payment. It may help users in terms of financial distress.
- Acceptance: Credit cards are the most widely accepted mode of payment. One can travel anywhere and use credit cards for transactions.
- Reward Points, Discounts, and Cash Backs: Most credit card issuers allow users to win unlimited rewards and cash backs depending on the amount of purchase.
- Credit Score Improvement: Transactions made on and paid in time help improve one’s credit score. A higher credit score indicates a higher limit of credit and a better chance of obtaining loans in the future.
Also Read: 7 Benefits Of Using A Credit Card: Pay And Get Rewarded!
Disadvantages of Credit Cards
- High Rate of Overuse: Putting all purchases on a single card can rapidly increase the rate of usage. This can lead to overspending and owing more than one’s ability to pay.
- High Rates of Interest: When users cannot pay within their due dates, they are liable to pay more in interest. Failure to pay in time can also decrease one’s chances of getting a loan.
- Fraudulent Activities: Credit cards can be duplicated very easily if someone can access a credit card owned by someone else. Gaining access to a card’s information can raise the burden.
- Hidden Costs: Issuers can levy multiple hidden charges on credit card users. This may include late payment fees, renewal fees and other processing fees. In addition, repeated late payments can also affect one’s CIBIL score.
Benefits of Debit Cards
- Convenience: Debit cards directly deduct money from one’s bank account. Debit cards can easily substitute cash payments and enable faster transactions.
- Emergency Fund: Debit cards serve as emergency funds if there is a cash shortage. Plus, one can easily use his/her debit cards to get reward points on transactions.
- Protection: One can access debit cards with a four-digit PIN. Entering a PIN is essential for the completion of any transaction. This ensures protection from theft or fraudulent activities. In case of loss, one can easily block the card and get a new one.
- Easy to Obtain and Budget: Any nationalised or private bank operating under the RBI’s guidelines can issue a debit card to an account holder. Since debit cards do not allow transacting more than what is available in his/her bank account, it is completely risk-free.
Disadvantages of Debit Cards
- No Credit Allowed: An inherent problem of debit cards is that they do not allow credits. They are directly connected to one’s bank account, and transactions debit amounts from it.
- Difficult to Dispute: Despite debit cards being fool-proof, it is difficult to detect and dispute illegal transactions. Any illegal access to one’s debit card details can allegedly lead to illegitimate transactions without being detected.
- Additional Fees: Most debit card issuers charge an additional fee for cash withdrawals from any other ATMs. In addition, there is a small limit to free withdrawals beyond which users are liable to pay a fee.
Credit Card vs Debit Card: The Key Differences
| Credit cards | Debit cards |
| Credit offering is repayable at a future date. | Mode of transaction or cash withdrawals |
| Timely payments improve one’s credit history. | Payments are possible as long as cardholders have enough balance and do not cross the daily limit. |
| Purchase requires a signature. | Requires 4 digit PIN |
| Users need to pay additional interest if they do not pay the borrowed amount monthly. | Users pay an additional fee if used in an ATM by a different issuer. |
| Good for hotel reservations, car rentals, purchasing electronic items on EMI, etc. | Good for daily use because it helps stay within budget. |
Also Read: 10 Best Credit Cards For Online Shopping
Final Word
Contactless payment is the need of the hour. Users do not need to carry huge amounts of cash to chase expensive items. Instead, they can use their credit or debit cards. Now that you know the difference between a credit card and a debit card, you can decide if you should use a credit or debit card for online and offline purchases, depending on your requirement.
FAQs
Ans: Although both credit and debit cards look similar, they perform very differently. Debit cards require users to have a balance equal to or less than/her account balance. Credit cards help initiate transactions based on one’s limit and credit score.
Ans: Debit cards can be used to perform net banking and UPI transactions. They can also be used to perform transactions directly.
Ans: Firstly, one should read the terms and conditions. Then, one can call customer service and ask them to deactivate the card. Users can clear all transactions and destroy the card thereafter.
Disclaimer
This article is solely for educational purposes. Navi doesn't take any responsibility for the information or claims made in the blog.
