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Cards associated with a bank account are known as debit cards. When you swipe this card, money is debited from your bank account. This means you will only be able to spend the amount that is available in your account.
On the other hand, credit products are offered by financial institutions that provide revolving credit lines to customers. Transactions executed through this medium include the card issuer, along with the acquirer or cardholder and the merchant.
Differences between Credit and Debit Products
- Working: When a customer uses a credit card, the card issuer puts funds towards the transaction. The amount that finances a debit or ATM card transaction is debited from the user’s associated bank account.
- Credit Free Period: When you shop from debit card, money is immediately debited from customer account whereas when you shop through credit card, you get 45-60 days (based the purchase date, in relation to the billing cycle) to make payment for your purchases.
- Billing: With a debit card, there is no monthly bill provided by the bank, as the cardholder’s transactions are financed with his own savings. With credit however, monthly bills are issued by the issuer and the users need to pay the outstanding amount before the due date.
- Application procedure: Applying for credit cards is slightly more difficult than applying for debit cards. Issuance depends on your credit score, income, and other related details. Every bank account holder can easily procure debit cards associated with their account.
- Spending limit: The maximum limit on credit cards is set by the issuer and can change as the credit score of the cardholder improves. The maximum amount that can be spent on a debit card is subject to the available funds in the associated bank account. Users can also set the maximum daily spending on their cards, which can be modified in case the need arises.
- Interest: Unpaid amounts on credit card monthly billswill invite interest charges at high rates. No such interest needs to be paid on debit card usage.
Pros and cons
- Majority of retailers across the country accept both kinds of cards and often charge the same price for the products and services. However, merchants need to pay interchange fees while processing RUPAY, Master or Visa cards, and similar schemes. Fees on debit cards are significantly lower than those on credit cards.
- In case of theft of credit cards, there is a high risk of fraudulent activities. The risk can be mitigated by reporting loss of card. Debit product fraud also presents a high risk, but the loss will be limited to the default limits or the limit set by the users.
- When you overuse your debit card, the bank will offer protection against overdraft. In addition, transactions exceeding the available funds are often rejected (although in certain instances, the card issuer allows overdraft facilities). Users are advised to check these facilities with their service providers. Failure to limit spending on credit cards can cause severe financial distress. Many users pay the minimum due amount on their cards, which can escalate to a debt trap if not checked in time, owing to the accumulation of interest and finance charges.
Payment and offers
When you apply for a credit card online, you should not be surprised to find institutions trying to entice you to both buy and keep using their cards. Issuers offer airline miles, redeemable reward points, discounts at partner retail shops, and cash back on spending. Debit card users also enjoy such promotional offers and discounts for card usage.
Credit card payments can be made using cash, cheque, or through online banking. Users also need to pay annual fees for continued usage of the card. Debit products do not have such payment needs and offer lower rewards on the funds spent through these cards.
As a user, both cards offer various benefits, but you need to be especially responsible when it comes to using credit cards, as failure to pay bills in time and using your card to make purchases that you cannot pay back in time will simply result in an escalation of your debt.
Rachita Kotian is an independent blogger and writing has been her passion for a long time. A literature major, she loves exploring the world of health, lifestyle, travel and finance. When she’s not writing, she’s most likely listening to music, cooking, surfing the web, or catching up on the latest flick.
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