What comes to your mind when we say a modern form of currency? Obviously, we think of credit cards and debit cards. Most of us who have a bank account own either of these cards or both. As similar as they may look, these cards are way different from each other.
Let us understand the difference between credit card and debit card and how you can utilize them for your benefit. Here you go.
What is a Credit Card?
Now what is a credit card? A credit card is a form of credit limit you use to pay for various expenditures. The amount that you borrow using a credit card needs to be paid back within the specified time.
Credit cards come with different credit limits which are determined based on your income, credit score, age, and so on. In case of delayed payment, you might have to bear late payment fees.
What is a Debit Card?
Banks issue debit cards against a savings or current account you may hold in their bank. You can use this card to spend the amount which is already present in your account. The card can be used to withdraw money from an ATM or pay directly during a purchase.
Let us take a quick look at the difference between credit card and debit card.
- Source of fund: When you use your debit card, you use the amount present in your bank account. While using the credit card, the financial company pays the amount on your behalf which needs to be repaid by you later.
- Statement: A debit card transaction record is stated along with your regular bank statement. Whereas the credit card transaction statement is generated by the finance company every month.
- Fees: For owning a debit card you must pay fees for pin generation and annual maintenance. For a credit card, you must pay joining fees, annual fees, late payment fees, and so on.
- Credit limit: the credit limit for a debit card is stipulated to the amount present in your bank account whereas the credit card fund limit is set by the financial organization.
- ATM withdrawal: You can use a debit card to withdraw cash from an ATM owned by your bank or other banks. There are no additional fees involved. While you use a credit card to withdraw cash, you have to pay additional fees.
- Interest: Users need not pay additional interest while they withdraw an amount using a debit card. Credit cards come with 50 days of interest-free credit. If you fail to make a credit card payment online within the due date, you have to pay additional interest on the amount you have spent.
- Eligibility: For debit cards, there are no additional eligibility criteria. If you hold a savings or current account, you automatically get a debit card. Credit cards are issued based on a set of basic eligibility criteria laid down by the specific financial organization.
Now you know that credit cards are distinctly different from debit cards. Both have their own advantages and limitations. Consider it all and use your cards smartly.