Debit cards and credit cards both look identical and have similar kinds of functionalities. However, they have some significant differences that make them completely different from one another.
If you are interested to know about these differences, you have landed on the right webpage. Here we will talk about the major dissimilarities between debit and credit cards. So, without any further ado, let’s get started:
Credit cards give you a credit limit that you can borrow to make purchases. For example, if your credit card is issued with a credit limit of $1000, you will be able to borrow equivalent funds to make purchases and payments. To avoid complications, you have to repay the borrowed amount within the stipulated time frame.
The credit limit mostly depends on your income, age, and your financial conditions. Credit cards may come very handy in emergencies when you don’t have enough funds in your bank account, but you have to pay the bills. Also, you can get some additional rewards, cash back, and discounts while making payments using your credit cards.
However, if you fail to repay the borrowed amount within time, you will be charged with additional interest on the amount you borrowed. Plus, most people abuse using credit cards, and they ultimately put themselves into higher debts. Therefore, using credit cards carefully becomes a must.
What is a debit card?
On the other hand, a debit card is a payment card that allows you to make transactions and payments by deducting the available balance in your bank account. Whenever you use your debit card, either for an online purchase, card swipe, or ATM withdrawal, the amount immediately gets deducted from your bank account.
Since the bank issues debit cards against your current or saving bank accounts, you can only use them to make a purchase worth the amount you have in your bank. So, for example, if you have $100 in your bank account, you can only make the purchase of $100 or a lesser amount.
Even though debit cards are great for those who don’t want to overspend money on unnecessary things, the limited amount could be a problem during an emergency.
Debit card vs. credit card: What are the major differences?
While at a glance both credit and debit cards look identical, here are a few things that distinguish them from one another:
Usage difference between credit cards and debit cards:
Debit cards allow you to make purchases using the amount you have in your current or savings bank accounts. On the other hand, credit cards allow you to make payments by borrowing funds against the credit limit issued by your bank.
Interest Charge: Credit cards vs debit cards
Since you are using your own money to make payments through debit cards, no interest charges are applicable to it. However, the interest charges are applicable when you delay repaying the billed amount when it comes to credit cards. Additionally, if you opt for the EMI option in some purchases, you must pay additional interest rates that vary from bank to bank.
Source of money
Debit cards deduct money from your savings or current account’s balance, while for credit cards, the money gets borrowed from the bank or company that has issued your card.
Impact on credit score
There is no such impact on credit score when using a debit card. But when it comes to credit cards, timely repayment can help you uplift your credit score, and late repayment can affect your credit score very badly.
Debit cards allow you to spend your money in your bank account. So, you can spend as much as you have in your bank account. But, on the other hand, you get a credit limit with your credit card. Therefore, you can only borrow as much as you have in your credit limit.
To get a debit card, you just need a bank account, which will do the job. However, getting a credit card isn’t that easy. First, your profile needs to meet certain eligibility criteria such as age, occupation, and, most importantly, your income.
Variety of cards
Debit cards don’t come with many options. On the other hand, there are a variety of credit cards designed specifically for spending needs. For example, you can get credit cards specifically designed for online shopping, medical bill payment, or more.
There are no additional benefits of using debit cards. In comparison, credit cards can offer you lots of additional benefits such as cash backs, vouchers, reward points, etc.
Security: Credit cards vs. Debit cards
Credit cards and debit cards are pretty secure until they get stolen or you lose them. However, most credit cards provide complete protection against loss and theft.
There is no such hidden expense for debit cards except the renewal fee. But when using credit cards, you have to be a bit extra cautious as sometimes, there are hidden fees such as cash withdrawal fees, fees on foreign transactions, or more.
The bottom line
So, these are some of the major differences between debit and credit cards. I hope you guys will like this article. If you still have any questions in your mind, feel free to drop your comments below. I or someone from our editorial team will surely revert you with the best possible answer. Thank you and keep visiting our website.