There is a myriad of questions that strikes our minds when we hear the terms credit and debit cards. One of the most common question is the difference in credit and debit cards and which is better? Making a choice between credit and debit cards might be a hectic task. Moreover, you might be in dilemma of the benefits of credit cards over a debit card and vice versa? So stay tuned till the end to end your confusion.

Well, credit and debit cards typically look like the same. Both have the 16-digit card number, expiration dates and Personal Identification Number (Popularly known as PIN Code). But still, there are lots of differences which I have tried to answer in this article, so that, choosing between a debit card and credit card will be easier for you. 

What is a Credit Card?

The financial institutions, typically the banks issue credit cards. It enables users to borrow money from that institution. According to credit card term and condition, every cardholder agrees to pay the money back, with interest. 

difference in credit and debit cards
Various Credit cards

Your credit card is like a loan where you have to approve certain limit of credit which is also known as a credit limit. The credit limit is basically maximum outstanding balance which you have in your credit card without receiving a penalty. Your credit limit will be based on your credit history and income, the stronger your credit score is, your bank will trust you more and you can avail higher credit balance.

Each month you will get a bill of the amount you have spent. You have to pay a minimum amount from that bill, and for the remaining amount, you have to pay with interest. Because credit card interest rates are usually very high. You can avoid interest amount if you pay the full amount of the bill. Try not to overspend, if you are unable to pay the full amount of the bill.

Credit cards have four categories :

  1. Standard cards: Simply extend the line of credit to their users.
  2. Reward cards: Offer travel benefits, rewards to their customer
  3. Secured credit cards: Requires an initial cash deposit that is done by the issuer.
  4. Charge cards: Have no preset spending limit but do not allow unpaid balance carry over.

The difference in Credit and Debit cards

One of the biggest difference in credit and debit card is that credit cardholders have many perks. Like reap cash, get rewards, travel points, security and protection more than debit cardholders. Credit cards also provide you warranty and insurance for purchased items. If credit card holder can report the loss and theft in a timely manner, their maximum liability for purchases made after the card disappeared is just $50. You can read about credit card perks in details from below given link.

Also, Read | Nine Advantages of credit cards that you must know

Though debit cards have this feature, this only works if the customer reports it within 48 hours. If you want to rent a car, in this case, you can use debit card also but still, some agencies want your credit card information as a backup.

What is Debit Cards

You all probably own a debit card and must have used it in day to day life. I think we all use debit cards on a daily basis, So how it works? A debit card is a basic plastic card just like a Credit card. When you make purchases with a debit card it takes money out directly from your account. If your purchasing amount Rs. 500 and you have only Rs. 300 in your account then your transaction will be declined. Because in the case debit cards, you won’t receive any bills or pay any interest. You can only swipe the money which you have in your account. The debit card also works as ATM cards. 

debit cards
Various debit cards

Basically, a debit card is a plastic card in which you take out money from the checking account directly rather than via loan from a bank. 

There are two types of debit card and one standard type :

  1. Standard type: Draws on your bank account
  2. Electronics Benefit card: Allows qualifying user to use their benefits to make purchases and this card is issued by the state and federal agencies.
  3. Prepaid card/Forex Card: User can make the purchase up to the amount which is preloaded and without access to a bank account

Many customers prefer debit card because it does not charge anything unless users spend more than they have in the account. In contrast, credit card charge over limit fees, late-payment fees, and annual fees. Retailers know people usually spend more when they use virtual cash instead of normal cash. Many of the benefits provided by the credit card companies will be funded by the interest and other charges who do not pay the amount on time. In recent days, debit cards like – Visa and Master’s cards are providing the same protection as credit cardholders have.

Summing up 

In a credit card, the amount gets deducted on a monthly basis. In contrast, in Debit card, the amount gets deducted the moment user opens the bank account. It’s up to you and your lifestyle of using money.

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