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There are many key differences between credit cards and debit cards. If you use a debit card to make a payment, the funds required are instantly debited from the savings bank account linked to the card. However if you use a credit card to make a purchase, the amount required is not debited right away. Instead, the cost of the purchase is charged to your credit card, and you will have to repay the liability later, within the due date. You can consider using debit cards for smaller everyday expenses, and rely on credit cards for major purchases instead.
Secondly, when comparing a debit card vs credit card, consider the purchasing power you enjoy. With a debit card, you only spend the amount you have in your bank account. However, with your credit card, you spend as per the credit card limit issued to you.
Apart from these key differences, debit and credit cards differ in terms of charges, billing, rewards, eligibility, safety and more. To make an informed choice when reflecting on the debit card vs credit card debate, it is crucial to know the differences between these two modes of payment.
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 |
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.
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.
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.
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.
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.
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.
Yes, most credit cards allow you to withdraw cash from an ATM using the credit card cash advance facility. A credit card user with this feature can withdraw a certain limit of funds using the card. However, the amount withdrawn as cash is often required to be repaid with interest and some other charges.
No, your credit history does not determine whether or not you are eligible for a debit card.
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Posted on 16 May
Roshani Ballal
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