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Difference Between a Credit Card and a Debit Card

បានប្រកាសនៅ Money & Finance នៅApril 13 2021 at 07:30 PM

If you are new to the world of personal finance, chances are that you have definitely thought of the difference between a credit card and a debit card. While they seem simple to understand on the surface, there is much more than meets the eye, and thus in today’s article, we will explore the key differences between a credit card and a debit card in India. 

The Definition

In order to understand the difference between a debit card and a credit card, one of the first things we need to understand is the meaning of them individually.

Debit Card:

A debit card can be understood as a financial instrument through which you can directly withdraw funds from your bank account. Instead of needing to visit the branch or write a cheque, a debit card decreases the hassle and allows you access to your cash whenever you need it. 

Credit Card:

On the other hand, a credit card is a financial instrument that lets you withdraw funds but not from your bank account. The credit card gives you a short-term loan with a pre-approved credit limit and, at the end of the month, sends you a bill of all the expenses in the previous month. Instead of letting you withdraw funds from your bank account, a credit card gives you a short runway such that you can spend the amount today and pay it back at the end of the month.

Differences at a Glance

Mentioned below are some of the most significant differences between debit cards and credit cards in India.

Verticals

Debit Card 

Credit Card

Source of funds 

Directly from your bank account. 

Short-term loan extended to you by the bank. 

Spending advantage

You can only spend the amount you have in your bank account and no more. 

You can spend more than you have in your bank account and pay it back at the end of the month. 

Who is paying who?

You are directly paying the vendor for your purchases. 

The credit card company pays the vendor for your purchase and you pay the credit card company at the end of the billing cycle. 

Statement generated 

The statement generated at the end of the month only accounts for the transactions in your bank account. 

The statement generated at the end of the billing cycle accounts for all your expenses along with the interest amount and other charges by the credit card company. All of these are added to calculate the net amount, you are liable to pay. 

Payment

You do not need to make any payment since you essentially spent your own money. 

Once the statement has been delivered to you, you need to make the payment to the credit card company within the stipulated date. 

Fees and charges 

The fees and charges associated with debit cards are minimal and only extend to annual charges or replacement charges. 

Owning a credit card can get quite expensive since there are multiple charges including late payment fee, bounced cheque fee, joining fee, annual maintenance charges, etc. 

Interest

The bank does not charge you any interest on your debit card spends. 

The credit card company starts charging you interest on the outstanding amount right after the due date of payment. 

Limit on the funds to be used 

Most banks do not allow you to set a limit on the amount you can spend. You can spend as much available in your savings or current account. 

All credit cards have a spending limit imposed on them, such that you can avoid overspending. 

Rewards 

These days debit cards also arrive with a reward program, but generally, they are very minimal. 

Almost all credit cards in the market have very attractive reward programs in place. 

Privileges

Does not come with any privileges in most cases.

Premium credit cards have lounge access and other exclusive privileges. 

Fraud 

Protection from debit card fraud is minimal in most cases. 

All credit cards arrive with 100% fraud protection, meaning that if your card got stolen, you won’t be held responsible for any unauthorized transaction. 

Pros and Cons:

Now that you understand the basic definition of credit and a debit card let us take a quick look at some of its pros and cons. 

Debit Cards:

Pros

  • Since you are using your own money, you are not in debt and also can also save more since there is no interest being charged. 
  • You can easily use a debit card to withdraw cash from any ATM with minimal charges. 
  • Approval for getting a debit card is easy and cheap. 

Cons

  • It does not help you build a credit score. 
  • Once the funds in your account run short, you can no longer afford your expenses. 
  • There is very little protection against debit card fraud. 

Credit Cards:

Pros

  • Credit cards are by far the best instruments to help you build a credit score. 
  • You do not need to carry cash as the card takes care of all expenses. 
  • You can keep spare cash in your account since the payment needs to be made at a later date. 

Cons

  • Credit cards generally arrive with an annual premium subscription as well as annual maintenance charges. 
  • Getting approved for a credit card can prove to be difficult.
  • If you fail to pay your credit card bill on time, your credit score will seriously suffer.

Conclusion: Which One Is Better?

Now that you know the difference between a credit and a debit card, you must be thinking which one is better for you, and the answer to this question lies in the situation. For example, if you are in a situation where you urgently need cash, but your account has run dry, then a credit card will probably be the best option. On the other hand, in a different situation, if you want to control your spending habits, a debit card will be best as you can only spend what you have in the account and no more than that.

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