Home»Blog»Banking»What is the Difference Between Credit Card and Debit Card?
What is the Difference Between Credit Card and Debit Card?
6 June 2022
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.
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 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.
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 on Differences Between Credit Card and Debit Card
Q1. How do we differentiate credit cards from debit cards?
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.
Q2. Can debit cards be connected to different forms of online payment?
Ans: Debit cards can be used to perform net banking and UPI transactions. They can also be used to perform transactions directly.
Q3. How can someone deactivate his/her credit card?
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.
Before you go…
Looking for instant 🚀 personal loans 24*7 anywhere, anytime? Get personal loans up to ₹20 lakh starting at 9.9% p.a. Install the Navi app now!!
Or, maybe you’re looking to buy that house you’ve been eyeing 🏠 and you need a loan of up to ₹5 crore. Install the Navi app now and get instant in-principle approval right away! Interest rates starting at 8.39% p.a.
How about an affordable health insurance policy👨⚕️ starting at a monthly premium of just ₹235? Install the Navi app now and get your policy in under 2 minutes.
Instead, want to put your savings into action and kick-start your investment journey 💸 But don’t have time to do research. Invest now with Navi Nifty 50 Index Fund, sit back, and earn from the top 50 companies.
Disclaimer: Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
Cristiano Ronaldo 7 ‘Dark’ Jokes, Football’s Bad Boy
100K+ Laid Off! 7 Ways to Be Financially Prepared for Layoffs
Looking Through SKY: Suryakumar Yadav’s Success Secrets🤫
10 Best Party Places in Bangalore: Rooftop, Brewery, Poolside
10 Best Christmas Gift Ideas Even Santa Wouldn’t Ignore
7 Tax Planning Tips You Cannot Ignore!
Save More! Check Out 10 Best Fuel Credit Cards in India
Inside Allu Arjun’s 100 Cr ‘Rectangle’ House
How to Earn Money on YouTube – Check 7 Sure Shot Ways!
7 Successful Women Entrepreneurs in India Who are Millionaires
We are a diverse group of writers, editors and Subject Matter Experts striving to bring the most accurate, authentic and trustworthy finance and finance-related information to our readers. Our mission is to simplify jargon and industry lingo. We believe sharing knowledge through relatable content is a powerful medium to empower, guide and shape the mindset of a billion people of this country.
Understanding Risk-Weighted Asset (RWA) and its Calculation in Banking
Risk-weighted asset or RWA is a banking term that refers to an asset classification system to deter...Read More »
List of 10 Best Savings Accounts in India
A savings account keeps your money safe, and lets you earn interest every quarter. There are many b...Read More »
What is Credit Appraisal – Eligibility, Benefits & How It is Done?
Ever wondered why loans get approved but also sometimes get rejected? Well, every bank has its own ...Read More »
Debt Trap: Meaning & How to Avoid Falling in It
Piling up debt could bring unnecessary stress. Having multiple loan EMIs and credit card bills to c...Read More »
How to Apply for Debt Consolidation Loans and What are Its Benefits?
If you have multiple loans, taking out a single loan to pay them off is known as a debt conso...Read More »
What is a Bank Identification Number (BIN) and How Does it Help in Preventing Fraud Transactions?
A Bank Identification Number or BIN refers to a credit card's initial four to six digits. The BIN i...Read More »
What is Kiosk Banking, How Does it Work and What Does it Offer?
Banking kiosks or ATMs are available at multiple locations across India – mostly in remote and ru...Read More »
Personal Banking: Services and Products You Should Know
Personal banking refers to the products and services that banks offer to customers to manage their ...Read More »
Know How to Increase CIBIL Score in 11 Smart Ways!
If you are in the process of securing a loan, the first factor that lenders consider is your CIBIL ...Read More »
Promissory Note: What it is, Features, Types and Format
Promissory notes are the go-to instrument used by financial institutions to keep a clear and legall...Read More »
What are Scheduled Banks? How are They Different from Non-Scheduled Banks?
Banks play an essential role in a country’s financial ecosystem. These financial institutions ass...Read More »
What is Trade Surplus – How to Calculate It and How is It Related to Savings Rate?
The balance of trade (BOT), commonly known as the trade balance, is the monetary value differential...Read More »
Diwali 2022: Diwali Holidays – The Festival of Lights
The ‘Festival of Lights’ is one of the biggest and most anticipated festivals in India. This is...Read More »
Best Index Funds – Top 20 Index Funds in India
Index funds replicate the performance of a stock market index, such as the Sensex or Nifty 50 to ge...Read More »