Although many individuals own and use both debit and credit cards for their purchases, distinguishing between the two can be challenging as they appear quite similar.
However, there are distinct differences between these plastic cards. Credit cards allow cardholders to borrow money from the bank within their credit limit, whereas debit cards are used by withdrawing funds directly from the cardholder’s account.
Learn the difference between credit cards and debit cards in easy and simple language with our comprehensive table. Discover the pros and cons of each type of card to help you make an informed decision.
What is Credit Card?
▪ A credit card is a small rectangular or metal card provided by a bank or financial institution that enables cardholders to borrow funds to pay for goods and services at merchants that accept cards as a form of payment.
▪ Cardholders are required to repay the borrowed funds, along with any applicable interest and other agreed-upon charges, either in full by the billing date or over time.
What is a Debit Card?
▪ A debit card also referred to as a check card or bank card, is a payment card that can be used instead of cash to make purchases.
▪ Although similar to a credit card, a debit card requires the cardholder to have sufficient funds in their bank account at the time of purchase, and the money is immediately transferred directly from their account to the merchant’s account to pay for the transaction.
▪ To understand the differences between these two types of cards, we have provided a comparative list of credit cards and debit cards.
Difference Between Credit Card and Debit Card
|Feature||Credit Card||Debit Card|
|Definition||A card that allows you to borrow money to make purchases, which you must pay back with interest over time||A card that lets you spend money that you have already deposited in your savings bank account.|
|Payment||You will receive a bill at the end of each billing cycle and can pay the full balance, a portion of it, or the minimum amount due..||The amount you spend is deducted directly from your savings bank account.|
|Credit limit||Credit limit is assigned by the issuer based on your credit score, income, and other factors.||You can only spend up to the amount you have in your account.|
|Fund access limit||You can access any amount up to what is currently available in your savings bank or current account.||You can use the card only up to the preset credit limit on your card.|
|Fees||Interest charges and fees such as annual maintenance charges, over-limit fees, late payment charges, and cash advance fees may apply.||May have fees such as Debit Card Replacement fees and foreign transaction fees, but generally do not have interest charges.|
|Bill||There is no bill or statement||You get a bill or statement each month with details of the transactions you have made|
|Rewards||Many credit cards offer rewards programs such as cash back, points, or miles for purchases.||Debit cards rarely offer such types of rewards programs|
|Credit score||Using a credit card responsibly can help build your credit score.||Debit card usage does not impact your credit score.|
|Fraud protection||All major Credit cards issuer generally offer more fraud protection and zero liability for unauthorised charges.||Debit cards also offer fraud protection, but you may be liable for unauthorized charges if you don’t report them in a timely manner.|
|Lost card liability||Protection from theft or loss of the card is minimal||Most cards offer 100% lost liability protection. So, you are not liable for any unauthorised transactions made|
|Cash advances||You can get a cash advance (Borrowing cash beyond your credit card limit) on a credit card, but it often comes with high transaction fee and a higher annual percentage rate (APR)||You can withdraw cash from an ATM using a debit card, but there may be limits on the amount you can withdraw.|
|Interest||There is no interest that is charged||Interest is charged on the outstanding amount if it hasn’t been paid by the due date|
Pros and Cons of Debit Cards and Credit Cards
▪ Convenience: In countries such as India, debit cards are a commonly used method of payment compared to credit cards.
▪ Budget-friendly: Unlike credit cards, there is no debt involved because you can only spend the money you have in your bank account.
▪ Security: It has built-in security features such as PIN numbers and fraud protection services.
▪ Cash access: Most debit cards allow you to withdraw cash from ATMs, which can be a suitable way to access money when you need it.
▪ No credit check required: Unlike credit cards, you don’t need a credit check to get a debit card. All you need is a bank account.
▪ Limited rewards: Debit cards typically don’t offer rewards, such as cashback, travel points, or other incentives.
▪ Limited fraud protection: Although debit cards have built-in security features, they may not offer the same level of fraud protection as credit cards.
▪ Limited credit building: Using a debit card does not directly contribute to building your credit score unlike using a credit card.
▪ Overdraft fees: If you attempt a transaction with your debit card that exceeds the available balance in your bank account, you may incur overdraft fees, which can be costly.
▪ Transaction fees: Some debit cards may charge fees for certain transactions, such as foreign transaction fees or withdrawals from ATMs other than affiliated banks.
Convenience: Credit cards (such as Visa and MasterCard) are widely used to make purchases at thousands of merchants worldwide.
Rewards: Many credit cards offer rewards programs, such as cashback, travel points, or other incentives.
Credit building: Using a credit card responsibly and making timely payments can help you build your credit score, which can be beneficial when applying for loans or other financial products.
Security: Credit cards have built-in security features such as fraud protection, zero liability and purchase protection, which can protect you from unauthorized charges and fraudulent activity.
Grace period: Most credit cards offer a grace period of up to 21 days to pay off your balance in full, which can help you avoid interest charges.
Interest charges: If you carry a balance on your credit card, you will be charged interest on the outstanding balance, which can be high-priced.
Fees: Some credit cards may charge annual fees, balance transfer fees, cash advance fees, foreign transaction fees, or other fees, which may increase the cost of using the card.
Debt accumulation: Credit cards can trap you in a debt trend, particularly when you carry a balance and only make minimum payments, which can lead to long-term debt and financial stress.
Overspending: Credit cards can get you into overspending habits, as you can access more credit than you can afford to pay back.
Credit score impact: Late payments, high credit utilization and other negative credit card behavior can negatively impact your credit score.