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What is the Difference Between Credit Card And Debit Card 

Most popular modes of contactless payments, debit and credit cards are also known as plastic money. Although they have a lot in common, their features and mode of operation differentiates them from each other. What is the difference between credit card and debit card? To get a better understanding about the difference between credit card and debit card, we should know the basics of these cards.

The basic difference while comparing a debit card vs a credit card is in the source from which the money is deducted. When you use a debit card, the money is debited directly from your account, while in the case of a credit card, it gets deducted from the credit card limit set by your credit card issuer. Let us take a look at some of the other main differences between debits and credit cards.

Particulars

Credit Card

Debit Card

Credit Limit

Has a set monthly credit limit

Does not have any monthly credit limit

Source of funds

Funds are borrowed from the credit card issuer

Funds present in Savings bank account or current account

ATM withdrawals

Chargeable

Chargeable in some cases

Interest

Up to 50-days of interest-free credit

No interest charged

Annual fees

Annual fee may or may not be charged

No annual fee charged

Usage

Can be used on all merchant outlets and online

May not be applicable on some websites

Eligibility criteria

Credit card eligibility depends on multiple factors, including salary, credit history, place of stay, etc.

Eligibility criteria requires you to have a bank account

Security features

Zero liability insurance (some cards)

No zero-liability insurance

Billing

Accumulates all the transactions in a billing cycle and generates a final bill which is to be paid within a stipulated time period

No bill is involved as money is spent directly from your account

Privileges

Comes with privileges such as discounts, cashbacks and other rewards

Limited privileges as compared to credit cards, but may offer cash backs/ rewards

 

Should You Choose a Debit Card or a Credit Card

Now that you know the differences between credit and debit cards, the question arises which card should you apply for? To help you make an informed decision on debit vs credit card, we have listed the advantages and features of both, so that you can check out which one adequately matches your financial needs.

1. Advantages of Opting for a Debit Card

  • The card is directly linked to your current or savings account, which makes payments easy.

  • The card allows you to access your saved money digitally.

  • Along with cashless purchases, debit cards also let you withdraw money free of charge anytime from the bank’s ATM.

  • No risk of debt as you can only spend the money you have actually saved.

  • No annual fees or interest charges are involved.

  • Getting approval for a debit card is easier.

2. Advantages of Opting for a Credit Card

  • Credit cards allow you to spend more than you have.

  • You can pay the amount spent in a billing cycle at a later date, which is known as the payment due date.

  • If you are unable to pay by the due date, you can convert your purchases into EMI, however, you will be charged interest.

  • As most e-commerce sites provide attractive credit card offers on purchases, it is ideal for online shopping.

  • Paying your bill on time helps you build as well as maintain a healthy credit score and credit history which can be useful in getting approved for loans in the future.

  • You can earn reward points against your credit card purchases which you can redeem against cashback, gift vouchers, discounts and more.

  • If there is a fraud transaction on your credit card, you can notify the bank and not have to bear the liability, as the transaction will be reversed immediately.

  • Some credit cards offer additional benefits such as airport lounge access, interest-free loans, insurance cover, indemnity cover, etc.

As mentioned above, you can distinguish between debit card and credit card with the advantages they offer. However, they have their set of limitations as well. So, what are the differences between debit and credit cards based on their limitations? Listed below are the limitations of a credit card and a debit card.

3. Limitations to a Credit Card

  • Credit cards come with added charges such as joining fees, annual fees, interest charges, late payment fees, etc.

  • Deferring on your bill payments can incur heavy penalties or interest charges.

  • Going overboard your credit limit could lead to an accumulation of debt.

  • Non-payment of your bill on time can negatively affect your credit score.

4. Limitations to a Debit Card

  • The deduction from your account is instantly making it difficult to keep disposable cash in your account without proper planning.

  • Limited protection as compared to a credit card.

  • No monthly statements are provided making it cumbersome to track the transactions.

Thus, it is only after going through all the debit card vs credit card differences and their pros and cons, should you make a decision.

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FAQs about Debit Cards vs Credit Cards

✔️Which is safer: credit or debit card?

When it comes to a debit card, the funds are directly debited from your account. Thus, there is no threat of incurring debt due to any interest charges or late payment fees, as is in the case of a credit card. On the other hand, certain credit cards offer lost liability protection against fraudulent activities. This is much more secure than a debit card, as any fraudulent activities could lead to irreplaceable damage or loss of funds directly from your account.

Thus, both credit cards and debit cards come with their own set of pros and cons. Now, you may have understood the credit and debit card differences too. Therefore, the decision to opt for a credit or a debit card must be made after thoroughly considering all your financial liabilities, spending behaviours, lifestyle, and eligibility.

✔️Is an ATM card a credit card?

No. An ATM card is a debit card. However, you can use a debit card at several places to make the payment like you use a credit card. The only difference between a credit card and a debit card is that you need an active balance in your debit card account to make the transaction. At the back of all the cards, it is mentioned whether it is a debit card or a credit card.

✔️Can you earn rewards with a debit card?

Most debit cards do not provide any rewards but there are a few banks that provide you with cashback and other rewards on using their debit card.