Both credit cards and debit cards are used to make payments without carrying liquid cash. However, there are many differences between a credit card and a debit card and how the cards are used.
Firstly, debit cards are linked to consumers’ bank accounts. So, if you do not have that required amount in your account, you won’t be able to make a transaction with your debit card. With a credit card, however, you can avail the amount you require as a credit from the lender.
Secondly, credit cards come with a pre-set upper limit, i.e. a credit limit beyond which you cannot access funds. In the case of a debit card, there is no maximum shelf on the funds. You can utilise it as long as you have money in your account.
Debit cards are only a medium to access funds available in your savings account whereas a credit card lets you access a pre-specified line of credit to make transactions and purchases.
Basic Difference Between Credit Card and Debit Card
There are multiple other differences between the Debit Card and Credit Card when it comes to using them, here are some of those. To determine which of these two cards are better, you must first understand the difference between credit cards and debit cards.
Today, though a larger number of digital transactions are possible, the most common usage of a debit card is still ATM cash withdrawals.
If you use a credit card to withdraw cash from the ATM, your card provider will levy a transaction fee as well as interest charges on the amount you withdraw. Both the fee and interest rate vary between financial institutions; however, such additional charges are universal for ATM withdrawals with a credit card.
With a debit card, there are no such charges or processing fees involved from the card provider’s end. Charges are only levied when you exceed a specified no. of transactions in a month. These fees are universally applicable across financial institutions. Thus, it is advisable to use only debit cards for ATM withdrawals unless there are insufficient funds in your account or you need liquid cash in an emergency.
However, some of the best credit cards allow ATM cash withdrawals at a 0% interest rate on their repayments, but only for a specified period.
Online or Offline Shopping
Shopping online or offline is perhaps the second most common point of the utility of these financial products.
When you swipe a debit card to shop offline or use a payment gateway to shop it online, you are simply utilizing your available funds digitally. Financial institutions may include attractive offers on your debit card for such transactions.
However, they award more offers with credit cards. Typically, credit cards earn you higher reward points when you use it to shop online or offline. Providers even run reward programs on their credit cards to attracting shoppers.
EMI & Similar ECS Payments
If you make EMIs or other relative ECS payments with your debit cards, there won’t be any interest levied on the amount you use because it is not a credit. But you need to make sure that you have the funds available in your account to avoid both late payment fees as well as ECS penalty charges.
In case you do not have the requisite funds in your debit card account, you can link an ECS payment with your credit card account. However, you should tally the total amount of interest you will be liable to pay at the end of the month.
Personal Loans during Emergencies
Short-term loans often become a necessity in case of emergency requirement of funds. Lack of money in your debit card account will obviously render it useless. But you can avail of the advance you require in the form of a personal loan.
Avail a personal loan on credit card against its unutilised credit limit. Leading financial institutions offer credit cards that have multiple benefits.
Debit Card Vs. Credit Card: How do they Differ?
Listed below are some Key Points of Difference between the Debit Card and Credit Card.
- Debit cards are directly linked to your savings account. Using these cards results in the expenditure of the money in your account. On the other hand, when you use a credit card you are not expanding your savings, but rather a line of credit that your credit card issuer offers to you.
- You do not have to pay any bills for debit cards, but you must clear debts and bills linked to your credit card.
- Credit cards have a reward point system, which allows you to avail discounts on products and services. Debit cards do not offer such facilities.
- Debit cards allow you to withdraw cash from your savings account without any interest charged on the transaction. However, cash withdrawal through a credit card results in your financing company levying interest on the sum.
Why Credit Card is better than Debit Card
Now that you know some of the basic differences between credit cards and debit cards, here are some reasons why credit cards are often better than debit cards.
Take Advantage of Travel Perks
Some of the best credit cards provide useful discounts and offers on flight tickets and hotel bookings. For instance, your card may allow you access to the lounges at airports, even when you are travelling domestically.
Additionally, credit cards help accumulate flyer miles, which you can then redeem to avail discounts on future flight ticket prices. Debit cards do not provide any of these features.
Improving Your Credit Score
While you holiday with your family or friends, using a credit card will allow you to improve your credit rating. If you manage to restrict your travel-related expenses within 40% of the total credit limit for the card, you stand to increase your credit score.
A better credit rating will help you avail loans in the future. Keep in mind you must pay the credit card dues on time to prevent a negative impact on your credit scores.
No Impact on Savings
Generally, a holiday results in considerable expenses, which may leave your savings compromised if you are using a debit card for the tour expenses. However, using a credit card does not affect your savings. People use the best credit cards to fund such expenses to ensure personal financial security.
Accumulating Reward Points
When you use a credit card, you can start to accumulate reward points. After some time, you can redeem these points across various retailers and service providers. Some of the best credit cards in the market allow you to redeem your reward points on flight tickets, shopping, and other expenses.
Paying for Travel through Installments
A credit card allows you to plan holidays even when you do not have the necessary funds to go on such a trip. This is because you can break down the entire cost of EMIs through your credit card. Such EMI conversion features make vacations more affordable, especially international travel with exclusive cards like the Bajaj Finserv RBL Bank SuperCard.
Many Bank & NBFCs also bring pre-approved offers specifically designed for existing customers. These offers are valid on credit cards, personal loans, home loans, business loans, and a range of other products. The offers simplify the process of availing finances and help save your time. All you need is to share a few basic details to check your pre-approved offer.
Whether it is for a personal loan or ATM cash withdrawal, credit cards are always better options for the optimum benefits and feature these come with. If utilised strategically, you can ensure better financial management and more savings annually.
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Bajaj Finserv provides pre-approved offers, which make availing loans easier and faster. These offers are available for unsecured credits, such as a personal loan, credit cards, and business loans, and secured loans, like home loans. You can check your pre-approved offers by providing your name and phone number.
The best credit cards allow you to engage in hassle-free travel while improving your creditworthiness at the same time. Furthermore, such cards offer you the opportunity to visit your dream destinations without having to worry about a lack of funds.
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