When you use your credit card to make purchases, you borrow money for a brief period rather than utilizing your funds. The criteria taken into account while establishing the maximum amount of credit include credit history, payment capacity, income, and debts. On the other hand, using a debit card suggests that you are using the money you already possess. This is because it is connected directly to your checking or savings account.
It means that once you use the money for a purchase, it is no longer there. Therefore, a debit card functions similarly to a cheque. It deducts funds from the account holder’s savings or current account when it is used. This is the main difference between debit card and credit card. Debit cards and credit cards are both plastic cards with magnetic stripes, EMV chips, and Visa or MasterCard logos. These cards contain 16-digit numbers that banks or other financial institutions issue.
Plastic money is a term used to describe an alternative to cash when purchasing with a credit or debit card.
A credit card offers customers immediate credit, typically lasting between 30 and 45 days. It has a revolving credit agreement-style structure. A four-digit PIN is given to the consumer to facilitate transactions. Each time the card is used, the customer must validate it using the PIN. This is merely an additional layer of security. These are typically used to make purchases of products and services online or at payment terminals. One of the top-ranking credit cards in India is Bajaj Finserv RBL Bank SuperCard.
These cards may be utilized both locally and abroad if they are authorized for such use. The customer’s current and previous financial situation are considered when determining the credit limit. The bank’s credit card division is in charge of keeping it up to date. You may have experienced the difference between a debit card and a credit card if you have used both.
Simply said, a debit card is a direct account access card that immediately deducts the transaction’s value when used. Using your debit card to make purchases guarantees that you stay within the established spending limit and eliminates impulsive spending that could lead to debt. A customer may only transact up to the amount that is currently showing as a credit on their card account.
As a result, purchases are done using the customer’s funds. The associated account is automatically debited with the fees associated with utilizing the card service. Nowadays, there are also multipurpose debit cards that aid with cash withdrawals from ATMs, payments, purchasing items at POS terminals, and online transactions.
Key Distinctions Between Debit and Credit Cards:
- A credit cardholder can purchase something on credit up to a certain credit card limit. A debit cardholder can spend the money available in his account. The person can’t spend more than that.
- Several authorized organizations can issue credit cards in addition to banks and a few non-banking financial institutions. In contrast, banks provide debit cards connected to bank accounts.
- With a credit card, the cardholder delays making the payment. On the other hand, anytime the debit card is swiped or dipped at POS terminals, immediate payment is made for the purchase. The sum is withdrawn from the customer’s account associated with it.
- With a credit card, you can make purchases now and pay them off later, much like with a loan. On the other hand, a debit card functions like a cheque and signifies immediate payment for the purchases made.
- Credit cards often offer a 45-day grace period for the consumer to pay in full. Otherwise, interest will be added to the amount owed. With a debit card, there is no credit period because the money is immediately taken out of the customer’s account.
- A person cannot apply for a debit card without having a bank account with the issuing bank. Credit cards can be obtained even by those without a bank account.
- While using a debit card doesn’t affect the CIBIL score, using a credit card aids in establishing and raising it.
- A credit card holder has the chance to accrue points, incentives, or cash back. These points or cashback can be used to pay for FMCGs, reserve hotels or book flights, among other things. In contrast, a debit card user receives few offers, reward points, or cashback.
Both credit cards and debit cards are useful. Both types of cards come with several advantages and disadvantages. You need to understand which one is better for your spending pattern. If used wisely, both are useful tools for managing your money.