Wondering what is the difference between debit card and credit card? Find out in this article.
Banking transactions are easy and convenient today, thanks to debit and credit cards. Be it visiting your favourite restaurants or shopping centres or making online purchases, you can do it all without withdrawing cash from your account. And while the two types of cards look the same and have similar fundamental uses, there are quite a few significant differences between a debit card and a credit card. Let us find out more about them, starting with their meanings, in this article.
A debit card is a plastic card that gives you instant access to the funds in your account. Typically, banks provide you with an ATM-cum-debit card to withdraw money at ATMs. You can just as easily use the card to pay for purchases at brick-and-mortar stores or buy products online. Your bank issues you a debit card when you open an account, and the card is linked to your account.
Every debit card comprises a 16-digit unique card number and expiry date on the front side. The reverse side contains the signature strip, along with a 3-digit CVV or card verification value.
In look and feel, a credit card is the same as a debit card. It also features a 16-digit card number, expiry date, CVV, and signature strip. However, a credit card allows you to borrow money from your creditor (usually a bank) for a temporary period (30-45 days). During this time, any purchase you make is paid off by the creditor. You have to repay the creditor a partial or complete amount on your pre-determined credit repayment date. Unlike debit cards, credit cards are not linked with your bank accounts. You can have a bank account with one bank, and your creditor could be another bank.
Let us now understand what the difference between a debit card and a credit card is.
When you use a debit card, the cash gets ‘debited’ from the account instantly. A credit card allows you to carry out a transaction on credit and is similar to borrowing. The bank that has issued the card makes the payment. The cardholder needs to repay the amount at a later date. If repayment is delayed, you need to pay interest on the amount.
Another point of difference between debit and credit cards surrounds issuance. Usually, debit cards are issued for free when you open a savings account. You, however, need to pay annual maintenance charges on debit cards. Banks typically levy a joining fee for issuing credit cards. Therefore, you also have to pay a nominal yearly fee to continue using the credit card each year.
Debit cards are provided as a complimentary facility, and the bank issues you one as soon as you open an account. However, you need to apply for a credit card on your own. For this, the bank asks you to submit your ID and address proof and considers your monthly transactions before qualifying you for the card. It also conducts a KYC process, checks your credit history and source of income before issuing a credit card.
You can use both debit and credit cards to withdraw cash. But with debit cards, you are not charged any interest, and there is no specific monthly limit on withdrawals (but there is usually a daily withdrawal limit). Credit cards allow you to withdraw cash from ATMs too, but you may withdraw only up to a specified monthly limit, and you have to pay interest on cash withdrawals.
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Technically, debit cards cannot be used as credit cards since the two cards function differently. With the former, money is debited from your card instantly upon making a payment, whereas with the latter, funds are not debited from your account until the credit repayment date. However, you can use your debit card to pay off your credit card bills.
While using both debit and credit cards at retail stores, you need to enter your PIN (Personal Identification Number) to complete the transaction. For online payments using credit vs debit cards, you have to enter the entire 16-digit card number, expiry date and CVV. In addition, you also need to input the OTP (One Time Password) sent by the bank or creditor to your registered mobile number to authenticate the transaction. Once you enter the PIN/OTP, the credit or debit transaction will be completed.
Once you learn the difference between debit cards and credit cards, you can make an informed decision about the right kind of card that works for you. Both cards can prove to be extremely helpful in different situations. So reach out to your bank and apply for both.
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*Disclaimer: This article is for information purposes only. We recommend you get in touch with your income tax advisor or CA for expert advice.