What is the Difference Between Credit Card & Debit Card – 2024

Debit and credit cards are vital for day-to-day banking needs. However, understanding the critical difference between credit cards and debit cards is also crucial. Debit cards are deducted directly from your bank account, whereas credit cards offer a line of credit.

Definitions

Let us look at some of the basic definitions of Credit Card, Debit Card and ATM card. 

Credit Card

A credit card allows the cardholder to borrow funds from a financial company or bank. The credit card is not linked to your savings account, but you must pay the dues at the end of every month. Unlike ATMs and debit Cards, you cannot withdraw cash from them. However, you can use it to pay for goods and services. Paying back the borrowed money on a credit card comes with multiple charges and interests.

Debit Card

A debit card is a multifunctional card that can be used anytime and anywhere. It is convenient and hassle-free. Like an ATM card, it is used to withdraw cash from the ATM using a four-digit PIN. Your debit card is linked to your savings account. However, it also has added benefits such as retail or restaurant payments.

ATM Card

An ATM card uses a four-digit PIN or passcode to withdraw cash from the ATM. Its sole function is only to withdraw the money. It is linked to your bank account. Therefore, when you withdraw the money, you will get an SMS with the withdrawal and the remaining account balance. Many banks charge high ATM fees, mainly if you use it to withdraw from another bank’s ATM. Some banks offer overdraft facilities on ATM cards, but they are optional. When it comes to utility, they have limited utility as they cannot be used for online or retail shopping.

Working with a Debit Card & Credit Card

Working with a debit card is quite different from working with a credit card. The Debit card is directly linked to your savings account. The funds are deducted as soon as you swipe the card or make a transaction using the card. The transaction will be successful if you have an adequate balance in your bank account. Otherwise, it will fail. There are no additional or hidden charges when spending your money. There is also a limited liability in case your debit card gets stolen, as it is PIN code protected. 

In the case of credit cards, you are borrowing money from a bank or financial institution. It offers a line of credit with a specific limit. Credit cards are unsecured loans that are easier to get. They are pre-approved loans you must pay back along with interest by the due date. You might face higher interest rates if you forget to pay the due amount on time.

Differentiate Between Debit Card & Credit Card

Let us find out the difference between Credit Card and Debit Card in detail. 

Similarities Between Debit Card & Credit Card?

Here are some of the key similarities between the Credit and Debit cards. 

Characteristics & Features of Credit Card

Let us find out all about Debit and Credit Cards now!

1. Characteristics of Credit Card

Here are some of the characteristics of a credit card:

• Interest Rates: The credit card payments come with many known and hidden interest charges. 
• Flexible Payments: It is a convenient way of making purchases and managing your savings if used wisely. 
• Grace Period: The grace period is given when the cardholder cannot repay the amount in the due period. It is usually a 15 day period. 
• Rewards: The reward mechanism lures the cardholder to make more and more payments and keep the economy going. 
• Influence on Credit Report: Using wisely can positively impact your credit report. It is a great tool to make or break your credit score. 
• Global Acceptance: They are accepted universally and can be used on international websites or physically during an international vacation. 
• Minimum Payment Obligation: Also known as an EMI option. It is used to reduce the burden of repayment on the cardholder. You only have to pay some part of the total amount each month.

2. Features of Credit Card

• Credit Limit: A credit card has a pre-approved limit set when issued. This limit can be extended depending on your spending habits.
• Payment Cycle: The borrowed amount has to be repaid every 30 days. This monthly payment cycle is crucial as it decides your credit score and limit.
• Compact: It is a thin rectangular plastic or metal card that fits your wallet and can be easily carried everywhere. 
• Grace Period: If you cannot pay the borrowed money by the due date, The issuer grants a grace period, usually 15 to 20 days long. After that, you must bear high-interest charges on your credit amount. 
• Influence on Credit Score: How you use your credit card heavily influences your credit score. If your credit utilisation ratio is more than 30% or you are not repaying the amount in due time, your credit score can be pulled down by a minimum of 100 points. 

Characteristics & Features of Debit Card

1. Characteristics of Debit Card

The characteristics of debit are different from the characteristics of credit cards. Let us find out how!

• A debit card offers direct access to your bank account. This ensures that the user only spends what they have. 
• There are no hidden charges or high interest rates. The only charge is nominal when issuing a debit card.
• ATM access helps users when they are short of cash. Many places still prefer cash over cards. 
• No impact on credit score. Since the person is only spending what they already have and there is no involvement of credit money, it does not affect the credit score. 
• There is no hassle of remembering to pay the monthly payments. 
• Making the payment through a debit card offers no rewards or benefits, unlike a credit card. 
• Debit cards such as Visa or Mastercard are also widely accepted internationally. Therefore, a debit card is also accepted globally.

2. Features of Debit Card

Here are some of the standard features of a Debit card. Read more. 

• Easy cash withdrawal from an ATM. 
• You can make payments both online and offline. 
• You are only allowed to spend within your capacity. 
• You can keep track of the amount spent and the remaining balance. 
• There is an option for an overdraft facility that can be availed in emergencies. 
• It is a secured form of payment. 

Credit Card or Debit Card – Which one is Better ?

Both Debit and Credit cards come in handy in certain situations. With digitization in the world, many merchants still need to accept cash. A credit card is a good option for making daily expenses or when short of cash. In the service sector, many employees use credit cards monthly and repay the amount when the salary gets credited. Many sellers offer great offers on credit cards. For example, you can get up to an INR 10,000 discount on buying an iPhone if you pay through a credit card. 

However, if you have a habit of overspending, having a credit card can pose a risk of increasing debt. This is where a debit card comes in. Since a Debit card is directly linked to your savings account, you can track your transactions. This can help you stay within your budget. If you have a debit card, you can withdraw cash from a nearby ATM in an emergency. Many small vendors and auto drivers still accept only cash as a mode of payment. A debit card is a responsible way of handling your finances.

What is Purchase Protections

Purchasing an item through a credit card can also provide warranties and free insurance. The insurance otherwise added could be very expensive. An extended warranty is also offered on an item with built-in price protection. For example, Mr X purchases a mobile phone from a retailer and pays through a credit card. The phone itself has a free warranty of up to one year. However, the credit card company offers an extended warranty of one more year. This ensures that your phone is insured for a total of two years. This helps you to get a replaced phone in case of theft or technical issues. Some debit cards also offer a warranty on certain items. But the ambit of insurance depends on the bank.

Advantages and Disadvantages of Credit Card

1. Advantages of Credit Card

• Building Credit History: It is an excellent and more accessible way to build a credit history and expand your borrowing limit. 
• Flexible Mode of Payment: A credit card comes to the rescue if you do not have enough balance in your savings account. You can pay and repay the borrowed amount immediately while enjoying the rewards and cashback. 
• Increase your credit score: A good financial history can facilitate establishing a credit score. If you have good financial habits, such as maintaining the credit utilisation ratio or paying back on time, it can improve your credit score.
• Help you get secured loans: Unsecured loans such as credit cards can pave the way for secured loans such as home loans or mortgages. 
• Rewards and Cashbacks: Every time you use a credit card, you collect some reward points that can be redeemed on shopping, flight booking, hotel booking, etc. 
• EMI Option: If you want to make a big purchase but need the means to repay the sum immediately. You can opt for EMI options, break your purchase amount into smaller sums, and pay them monthly. 

2. Disadvantages of Credit Card

• You are not just paying back the amount spent on a credit card. The due amount includes interest, other hidden charges, and the actual amount spent. 
• Refraining from payments beyond the due date will land you in a debt trap due to excessive interest rates and late charges. 
• How you manage your credit card payments affects your credit score directly. A bad credit score makes it difficult for you to get a secured loan such as a home or vehicle loan. 

Advantages & Disadvantages of Debit Card

1. Advantages of Debit Card

• Easily Obtained: Your debit card is linked to your bank account. Every time you open a new account, you get a debit card. You don’t have to wait for it or have your credit report analysed to get it. 
• Convenient: It can be used as a cash alternative. You can use it anywhere and pay with a single swipe on the machine. 
• No Risk of Debt: Unlike a credit card, a debit card is directly linked to your savings or current account; you can only spend the money you already have. Hence, there is no chance of getting stuck into a debt trap. 
• Security: The PIN used every time you make a transaction is a personal number you set. It eliminates the risk of theft or unauthenticated withdrawals. Since your account is linked to your phone number, you will also receive an SMS if someone makes a transaction. 
• High Acceptance Rate: It is accepted everywhere. Credit cards can only be accepted at good stores and online. Regular vendors still prefer cash or debit cards. 
• Instant Cash Withdrawal: You can withdraw cash from any nearby ATM via a debit card.

2. Disadvantages of Debit Card

• There is no credit option when it comes to debit cards. The balance in their account determines the spending limit of the account holder. 
• If you withdraw from an ATM different from your bank’s, you incur additional withdrawal charges every time you withdraw cash. 
• The bank charges a fee for issuing and maintaining the debit card. The fee is nominal and is usually ignored by the cardholder. 
• The debit card is not entirely free from fraud and theft.

Conclusion

Hence, when it comes to the comparison between credit cards and debit cards, both are very distinct yet vital tools in the financial system. Each has its uses, features, advantages and implications. Nothing makes them more or less important than each other.

FAQs

Disclaimer

This article is solely for educational purposes. Stable Money doesn't take any responsibility for the information or claims made in the blog.