Debit cards allow you to use the funds you currently have in your bank account to make purchases. On the other hand, credit cards enable you to borrow money from the card issuer, subject to a predetermined limit, which you can use to pay for goods or withdraw cash.
While debit cards draw money from your existing bank account balance, a credit card allows you to take out a loan from the card issuer. Each has its advantages and limitations and understanding these distinctions can help you make informed decisions about how you utilize your finance options.
Key takeaways: Credit card vs. debit card
Debit cards and credit cards are both widely used for making payments online and offline. They offer convenience and ease of transactions, but there are some key differences, such as:
- Debit cards are linked directly to your bank account. When you use it, the money is deducted immediately from your account.
- A credit card allows you to borrow money from a bank or lender up to a set limit.
- Debit cards are mainly used for everyday transactions like buying groceries or paying bills. They are not widely accepted for hotel stays, rental cars, or online purchases.
- Credit cards are easier to use for these types of transactions and offer better consumer protection.
- Credit cards offer more attractive rewards programs with cashback, points, or miles. Debit cards also offer rewards, but usually less than credit cards.
What are the similarities between debit cards and credit cards?
Here are some key similarities between debit cards and credit cards.
- Both cards offer convenience and ease of transaction. You can use them for purchases at most stores and online retailers.
- With payment networks like Visa and Mastercard, both cards are widely accepted.
- Both cards offer fraud protection. You are usually not responsible for any fraudulent transactions on your account.
- You can access your account balance online for both types of cards.
- Both cards may come with rewards programs, although credit cards tend to offer better rewards.
What is a debit card?
Debit cards are issued by banks against your current or savings accounts. When you swipe your debit card to make a payment or withdraw money from an ATM, the money is directly deducted from your account. This could pose a problem during emergencies, in case you do not have sufficient balance in your account.
What is a credit card?
On the other hand, a credit card gives you a credit limit from which you can borrow funds to make payments as and when required. You need to pay back the borrowed amount within a stipulated time, following which the limit is restored. Interest is charged on the outstanding amount only in case of delayed payments. You can also get reward points, cashback and discounts by using a credit card.
As you explore the best credit cards in India, the Bajaj Finserv RBL Bank Credit Card is one of the best options available as it offers a loan against a credit card and cash withdrawal, shopping on easy EMIs, excellent rewards and benefits along with different types of credit card to suit your unique needs.
Pros and cons of debit cards and credit cards
Debit cards and credit cards are common payment methods that most of us rely on every day. While they both offer convenience and ease of use, there are some significant differences between the two. Here are some of the pros and cons of each to help you decide which option is best for you.
- Debit cards draw funds directly from your bank account, which means you won't accumulate debt or incur interest charges.
- They are widely accepted and can be used for purchases and withdrawing cash from ATMs.
- Debit cards can be a useful tool for budgeting as you can keep track of the available balance and avoid overspending.
- There is no provision for overdraft protection. This means that if you make a transaction that exceeds your available balance, it may be declined.
- Unlike credit cards, they don't offer rewards programs or cashback options.
- They don't build a credit history, so they won't be useful if you want to enhance your credit score.
- Credit cards offer a way to borrow money to pay for large purchases, and you can have a certain amount of time to repay the amount borrowed before you start incurring interest charges.
- They can help you build credit history by making on-time payments.
- Credit card payments sometimes offer rewards and perks such as cashback, travel rewards, points, and other benefits.
- Credit cards are infamous for their high-interest rates, which can be detrimental if you don't pay off the balance in full every month.
- Late payments, overcharges, and debt accumulation can lead to reduced credit scores, which can affect your creditworthiness.
- They may come with annual fees, cash advance costs, or balance transfer fees.
Debit Cards Vs. Credit Cards: A Comparison
Deducts money from your savings or current bank account
You borrow funds to pay for goods and services
Savings or current bank account
The card issuer extends a credit as per your eligibility. The credit needs to be repaid every month or in EMIs. It works like a short-term loan
You can only spend the money how much you have in your account
Can spend the card limit
Who pays for the purchase
You pay for your purchase
The credit card pays for your purchase. You pay it back in full every month or in EMIs over a few months
There is no bill or statement
You get a credit card statement each month with details of your transactions
There is no payment that needs to be made since you are using your own money
A bill needs to be paid each month, ideally in full month
Fees and charges
Annual fees and PIN regeneration fees are applicable.
Credit cards have varied fees. These include joining fees ( in some cases), annual fees ( in some cases), late payment fees, etc.
There is no interest that is charged
Interest is charged on the outstanding amount if you have not cleared it by the due date
You get to enjoy a range of benefits, like cashback, air miles, reward points, monthly milestones points, welcome reward points, discounts, and much more. The points are redeemable across shopping, booking, dining and more
Packed with numerous dining, retail, entertainment, and travel privileges (depending on the type of card you have
Lost card liability
Protection from theft or loss of the card is minimal
Most cards offer 100% lost liability protection. In most cases, you are not liable for any unauthorised transactions made.
How to choose between debit cards and credit cards?
When deciding between a debit card and a credit card, it is crucial to consider your financial habits and goals. Here are key pointers to help you make an informed decision for the Indian audience:
Spending control: If you prefer spending within your means and avoiding debt, opt for a debit card. It directly accesses your bank funds, ensuring you only spend what you have.
Credit history building: Choose a credit card if you want to build a credit history. Responsible use, such as timely payments, can positively impact your credit score, facilitating future financial transactions.
Flexibility and rewards: Credit cards offer flexibility in managing expenses and often come with rewards like cashback and discounts. Assess your lifestyle to determine if these perks align with your spending patterns.
Emergency fund: Credit cards can serve as a financial safety net during emergencies. If having access to instant credit is a priority, a credit card might be more suitable.
Interest consideration: Be mindful of interest charges on credit cards. If you are disciplined in repaying balances promptly, the benefits may outweigh the costs.
Evaluate these factors based on your individual needs and preferences to select the card that complements your financial strategy.
Choosing between a debit and credit card depends on your financial habits, goals, and preferences. Debit cards are ideal for those who prefer spending within their means, while credit cards offer flexibility and additional benefits for those who can manage credit responsibly. Ultimately, the key lies in aligning your choice with your financial objectives, ensuring that your plastic companion complements your journey toward financial well-being.
Frequently asked questions
Debit and credit cards cannot be compared. Debit cards restrict spending to funds available in your account, but credit card offers extra credit if you require it. Credit cards offer the convenience of spending more even when you do not have money in your bank balance while they offer benefits like reward points and complementary benefits, and discounts. Using the cards responsibly helps you improve your credit score, making you eligible for a bigger loan when required.
No, an ATM card is not a credit card. ATM cards allow access to a customer's funds for cash withdrawals and deposits, while credit cards allow customers to borrow from a financial institution. But with Bajaj Finserv RBL Bank Credit Card, you can withdraw interest-free cash for up to 50 days. Check the range of co-branded credit by Bajaj Finserv that offers cash withdrawals.
Debit means you are using your own money, while credit means you are borrowing money for a certain time period. Credit cards offer the convenience of spending more even when you do not have money in your bank balance while they offer benefits like reward points and complementary benefits, and discounts.
Both cards offer safety features but using a credit card may be safer. Credit cards are not directly linked to your bank account, so if someone steals your card or card number, they cannot access your bank account. Credit card companies also tend to have better fraud protection policies than debit cards.
No, there are some differences. Debit cards are linked directly to your bank account, so when you use them, money is deducted immediately from your account. Credit cards allow you to borrow money from a bank or lender, up to a set limit, and you pay interest on the balance.
The benefits of debit cards include easy access to your funds, widespread acceptance for day-to-day transactions, and the ability to avoid debt. The benefits of credit cards include the ability to make large purchases, the potential for rewards like cashback or points, and the ability to build credit.
The main difference is that a debit card deducts money immediately from your bank account, while a credit card allows you to borrow money up to a set limit and pay interest on the balance. Debit cards are mainly used for day-to-day transactions, while credit cards are easier for larger purchases and are more widely accepted for hotel stays, rental cars, or online purchases.
The choice between a debit card and a credit card depends on your financial habits and needs. Debit cards offer direct access to your bank account funds, ideal for budget-conscious individuals. Credit cards, on the other hand, provide a line of credit with the option to borrow money and pay later, offering flexibility and potential rewards.
The suitability of using a credit card or a debit card varies based on individual preferences. Credit cards offer benefits like rewards, cashback, and purchase protection, but require responsible spending to avoid debt accumulation and interest charges. Debit cards provide immediate access to funds without the risk of debt, making them suitable for budget management and avoiding interest payments.
Yes, using a credit card can be safe when used responsibly. Credit cards offer enhanced security features such as fraud monitoring, zero-liability protection against unauthorised transactions, and the ability to dispute charges. However, it is essential to safeguard your card details, monitor transactions regularly, and report any suspicious activity promptly to ensure security.