Credit cards and debit cards share a similar look. When you open a bank account, you usually get a few things: a checkbook, a passbook, and an ATM card that also works as a debit card. Later, the bank may also provide you with a credit card. But many people mix debit and credit cards considering them as one. Let us understand the difference between credit card and debit card in simple terms to remove any confusion.
What is Credit Card?
A credit card is a plastic card provided by a financial institution, usually a bank, that enables cardholders to borrow money to make purchases. Credit cards provide a convenient and widely accepted means of payment for a variety of transactions including retail purchases, online shopping and bill settlements. They often come with complementary benefits like rewards schemes, cashback incentives and purchase protection measures.
Credit card benefits
Rewards : Many credit cards offer rewards programs, cashback or travel rewards for purchases made on the card. These perks may include points redeemable for merchandise, airline miles, or statement credits.
Emergency Fund : Credit cards can serve as financial protection in emergencies when money is needed urgently but is not available in your bank account.
EMI facility : If you're considering an important purchase and don't want to deplete your savings, you can opt to charge it to your credit card as a means to defer payment.
Interest-Free Period : If the balance is paid in full by the due date, credit cards usually offer an interest-free period on purchases, allowing you to borrow money temporarily without incurring interest charges.
What is Debit Card?
A debit card is also plastic card provided by your bank to account holder and this card linked to your savings or current bank account. When you open an account, the bank provide you a card that you can use to withdraw money or cover your purchases at ATMs and Point of Sale terminals. The amount is instantly deducted from your bank account whenever you use your debit card. Banks usually offer debit cards for free but may charge a small annual maintenance fee.
Debit card benefits
ATM access : Debit cards enable you to withdraw cash from ATMs, providing convenient access to your money anytime, anywhere.
Convenience : Debit cards provide a convenient way to access funds in your bank account for purchases, withdrawals and online transactions without the need for cash.
No debt : Unlike credit cards, debit cards allow you to spend only the money you have in your bank account, helping you avoid debt and overspending.
Acceptance : Debit cards are widely accepted at most merchants around the world, allowing you to make purchases at a variety of stores, restaurants, and online retailers.
Difference between credit cards and debit cards
Debit and credit cards are both commonly used for purchases, but they work in different ways: Here, we have highlighted the main differences between debit cards and credit cards:
| Features |
Debit Card |
Credit Card |
| Source of funds |
Deduction from your savings or current account |
Borrowed from the issuing bank |
| Payment process |
Uses funds directly from your account |
Borrows money that you have to repay later |
| Spending limit |
Limited to the available balance in the account |
Credit limit is usually set by the issuer. |
| Interest charges |
Usually no interest charges |
Interest applies if the balance is not paid in full |
| Impact on credit |
Usually has no impact on credit score |
Credit score may be affected depending on usage |
| Rewards |
Less rewards and benefits than credit |
Often come with rewards, cashback |
| Monthly Statements |
Usually provides complete transaction details |
Provides detailed monthly statements |
| Requirement for Approval |
Usually requires a bank account |
Requires credit check and approval process |
| Building Credit |
Building a credit history usually doesn't help |
Can help establish and improve credit score |
| Cash Advances |
You can withdraw cash from ATM, but charges may apply |
Can get cash advances with frequent fees and high interest rates |
