In recent years, card payments have become very common among customers. These days, credit cards and debit cards are frequently utilised for making transactions in-store as well as online. As a result, people carry less cash in purses, which offers a huge relief from theft risks. Even making a credit card transfer to bank account is convenient.
However, deciding between the two options can be difficult for some people. This article aims to give readers a thorough comparison between credit cards and debit cards, including a discussion of the benefits and drawbacks of each.
Debit Card and Credit Card Difference
To borrow money and make payments without physically exchanging currency, people have turned to credit cards, which are financial instruments provided by banks and other financial institutions. A credit card can be used for many purposes, including online/offline purchases, making payments, and getting cash from ATMs. Borrowed funds, however, are subject to interest charges. Credit cards come with a variety of features, including:
- The maximum sum that can be borrowed with a credit card is known as the credit limit.
- Interest rates: The rate charged by a credit card issuer for using the card to make a purchase differs from one bank to the other.
- Credit card issuers compete for customers by offering enticing perks and rewards like cashback, reward points, discounts, and special deals.
Credit card benefits
- Advantages: Credit cards allow you to make purchases without carrying any cash.
- Credit history: Responsible credit card use can get easy access to loans and other financial goods.
- Cashback, reward points, and discounts are just a few of how credit card incentives that perks can help the user save money.
Credit card drawbacks
- Credit card interest rates are incredibly high, making it easy to fall into the trap of overspending if payments are missed.
- Annual fees, late payment fees, and cash advance fees are just a few examples of the fees associated with credit cards.
- Financial trouble can result from using credit cards, as it is simple to overspend and get stuck in a cycle of debt.
A debit card provides its user access to their bank account to make purchases and cash withdrawals. A debit card can only be used to make purchases up to the current amount in the cardholder’s bank account. Debit cards include the following features:
- Because a debit card is tied directly to your checking account, you can only spend the money that is actually in there.
- Because you are using your own money, there is no interest charged when you use a debit card.
- Unlike credit cards, debit cards may not have rewards and perks associated with using them. However, top banks offer debit cards with reward points and other customer benefits.
Positives of Using a Debit Card
- You can face limitations with a debit card since you can’t use it to make purchases that exceed your available balance.
- There is no interest charged while using a debit card as you are using your own money.
- Charges like transaction fees, late payment costs, and cash advance fees are not included with debit cards.
Consequences of Using a Debit Card
- Because debit card use does not contribute to establishing a credit history, its use may not help a user when applying for loans or other forms of credit.
- In the event of fraud or unauthorised purchases, debit cards do not offer the same level of protection as credit cards.
- With few exceptions, debit cards do not offer any perks, such as cashback, reward points, or special deals.
If you don’t have enough money in your savings account to cover the purchase (or have overdraft protection activated), you won’t be able to use your debit card, but you can use a credit card.
When you use a debit card, the amount charged is deducted straight from your bank account. You can put off paying for something with a credit card and pay it off later. But remember that credit cards can help establish or improve your credit history. Also, if you don’t use them wisely, they can cause more harm than good. You can even transfer money from a credit card to a bank account.
An alternative to using cash or a cheque, a debit card, can be used to make purchases. With purchases made with a credit card, you are effectively borrowing the money from the card issuer, but with a debit card, you are simply using the funds already in your account. Yet, it’s not like there’s always a better option. Whether you use a credit or a debit card, which acts like cash, depends on your spending and budgeting habits.
Consider Some Important Factors
If a debit card user activates overdraft protection, the line between debt and non-debt instruments blurs. The bank covers the difference when a customer makes a withdrawal that exceeds their available funds. The account holder must then pay back the original overdrawn amount plus any applicable interest for overdraft protection.
Bounced cheques and denied debit transactions can be avoided with overdraft protection. The price for such safety, however, is costly. As a short-term loan, banks impose interest fees on customers who use the service. High-interest rates, possibly even higher than those for credit cards. That’s why caution is essential if you use a debit card with overdraft protection.
Hope this article helped you learn the difference between credit and debit card.