The difference between credit cards and debit cards is much beyond than you could ever imagine as they share similar features especially concerning the logo of a prominent company like MasterCard or Visa. Both these cards are utilized to carry out online transactions such as the purchase of goods and services with ease. However, a debit card redeems funds from the bank account while a credit card makes use of a credit line which is supposed to be paid back with interest on a monthly basis.
The credit line of a customer is based upon their creditworthiness and it is up to them to decide when and how to spend the remaining line of credit. It is normally billed on a monthly basis. A debit card usually arrives with an overdraft line of credit linked to a checking account of customers to manage to overspend. On the contrary, a credit card consists of a particular amount of credit linked to it. Whenever a customer attempts to spend exceeding the threshold, the card will be temporarily blocked.
Some of the key differences between credit card and debit card are as follows:–
- When a person makes use of a debit card, the cash is deducted from their savings account or current account. But this is not applicable in the case of a credit card as you are liable to pay the bill on a monthly basis. An individual will not be able to leverage a debit card when their bank account is vacant, however, they could use a credit card under any circumstances. Another major highlight concerning a credit card is that it helps in enhancing the credit failing which might affect their credit ratings.
- A debit card is a powerful tool that can be used to withdraw money in the absence of a check or actual cash. On the other hand, you are borrowing cash while using a credit card. In the case of a debit card, an individual is utilizing their funds.
- There are security concerns with regard to a debit card. If in case it is stolen or funds are withdrawn by a third party, then it would take a considerable amount of time to retrieve the funds back. There are no such security issues in the case of a credit card.
- Credit cards are useful in building up your credit history and it sometimes features a reward program that can be availed with ease. This is not applicable in the case of a debit card as it does not provide rewards and it does not help enhance your credit history as well.
- Credit cards are very helpful especially while traveling overseas. If in case you have a decent line of credit, it is extremely easy to execute an emergency payment rather than fret about cash being withdrawn from your bank account. Apart from that, the majority of the established hotels, resorts, and car rental entities accept only credit cards to that of debit cards amidst traveling.
- Another major difference between a credit card and a debit card is that a bill is generated at the end of the month in the case of a credit card while a debit card does not. Bills or statements would clearly describe the monthly transactions being carried out by an individual.
- You are required to pay back the bill each month in the case of a credit card whereas there are no payments required to be carried out as he/she is using their funds from their savings account.
- Debit card levies PIN registration fees and annual fees. Even credit cards charge late payment fees, annual fees, and bounced cheque fees wherever applicable.
- Credit cards charge additional interest on the outstanding amount unless it is not paid within the due date. On the other hand, a debit card does not charge interest.
- There are no specific thresholds to redeem cash in the case of a debit card whereas a credit card consists of a default credit limit.
- A debit card does not feature any sort of benefit but a credit card arrives with numerous advantages such as travel, dining, retail, and entertainment privileges.
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Each credit card is a debt instrument. If an individual takes advantage of a credit card to redeem funds, the concerned cardholder is borrowing money from a reputed firm and they are liable to pay back with interest on a monthly basis. On the contrary, debit cards are not debt instruments since they are simply accessing their bank account to carry out transactions.
Both credit and debit cards are powerful tools to purchase goods and services. If you are concerned about spending too much and budget-conscious, then it is better to rely on a debit card since it would make sure that only the minimum amount is being spent.