Difference Between Credit and Debit Card

What is the difference between credit card and debit card and how to distinguish between the two? A credit card differs from a debit card in that it gives the credit card owner an opportunity to borrow money from the card issuing bank up to the limit assigned by that bank whereas, while using debit card, one can withdraw or use money for online transactions (purchases etc) from the funds he/she has deposited in linked bank account.

What is a Credit Card?

A credit card is a plastic card that is used to purchase things on credit. You purchase things on loan, the bank pays the amount of money on behalf of the customer. The customer then pays the credit card bill by the end of the month. The customer does not need to pay any interest if the credit card bill is paid on time each month. The amount which you can spend in a month depends on your credit return history and also on how much the bank or the card provider has trust in you that the amount which is taken as the loan will be paid back on time.

What is a Debit Card?

A debit card is also a plastic card. This card is issued by the bank and you can buy goods and pay for services using the card. You don’t need to hold cash and just use the card for making the payments. When you pay for something using this card, the money is deducted from card owner’s bank account directly at that time, which means that bank is not paying for the purchase instead the person pays for it directly as the amount of money is transferred from the buyers account to the seller's account.

Credit Card vs Debit Card 

When you are using a debit card you pay for the things from your account right at that time which means you can't spend more than the amount which you have in your current bank account.

In case of credit card, you can spend more than what you have in your account, however, this can make you spend more than what you should, which means that you might be unable to pay off the credit card bill hence interest will be charged on the bill leading to problems for the person at times as it might exceed the budget. 

In case of a debit card, you don’t have to pay any interest or extra money such as fees of making a purchase, however in case of the credit card you have to pay the interest if you are unable to pay the credit bill of one month.

For a debit card, the insurance on purchases is not present. Credit card does provide insurance because at the time such as a hotel booking may require some additional payments such as utility bills, service charges, etc and with a credit card it's easier to do it as compared to do with a debit card. These gives an understanding of difference between credit card and debit card.

A key difference between a debit and credit card is that the debit card is directly linked to one’s own funds available in bank while credit card is linked to the credit line offered by bank.

Whether to use a Credit or a Debit Card?

The decision to use debit or credit depends on various things. If you think that you might overspend, then debit a card is a good option as it only allows you to spend what you currently have in your bank account.

If you are short of money and need to make a purchase or make a payment to someone then you can use the credit card. You don’t have to wait till the payment comes in your bank account. You can just make it right now and later on when the money comes into your bank account, you can pay the bank. It's recommended that you have some funds in cash too because at times if you are paying a big amount of money and are unable to pay it to the bank then the interest charged on it will be huge.

Precautions using Credit and Debit Card

Along with this detailed difference between credit card and debit card, some precautionary measures need to be taken by card owners. Here is a list of the precautions that you must take to avoid untoward loss:

  1. Firstly, you must be careful that you don’t exceed your limit in case of the credit card which means that you don’t spend more than your budget.
  2. In case of debit card make sure that you manage your expenses properly so that you don’t have a problem later on before the next payment/ deposit in your bank account.
  3. In case of theft or robbery of the card, report as soon as possible.
  4. If the card is used after theft you can file a complaint. In this case you won’t be liable for any fraudulent charges, however, if the card is used before you make the complaint you might be liable for some of the charges.
  5. Never share the pin code with anyone as people can use it to make purchases or even hack your account so be careful and keep the cards safely.