Difference Between Debit and Credit Cards: Which One is Better for You?
Debit cards and credit cards play a crucial role in online banking and digital transactions. While both cards are used for financial transactions, they operate in distinctly different ways. It’s important to understand the differences between a debit card and a credit card (Debit Card vs Credit Card) so you can make an informed decision about which one is better for your needs. Let's break down how and when to use a debit card and a credit card, and which might be more suitable for you.
What is a Debit Card?
A debit card, often referred to as plastic cash, is issued by banks and is primarily used for everyday purchases. With a debit card, you can withdraw cash from ATMs and conduct both online and offline transactions. The card is linked to your savings or current account, meaning any transaction you make is directly debited from your account balance. You can withdraw or deposit cash into your account using this card through an ATM.
What is a Credit Card?
A credit card is a financial tool that allows you to make purchases first and pay for them later. It comes with a preset credit limit, which is the maximum amount you can spend using the card. Simply put, every time you use your credit card, you are borrowing money from the bank or financial institution that issued the card, essentially taking out a short-term loan.
Key Differences Between Debit and Credit Cards
- Payment Source: When you use a debit card, the amount is immediately deducted from your savings or current account. In contrast, when using a credit card, the amount is borrowed from the bank, and you are required to repay it later.
- Spending Limit: With a debit card, you can only spend what is available in your bank account. However, with a credit card, you can spend up to the limit set by your card issuer, regardless of your current bank balance.
- Account Requirement: To obtain a debit card, you need to have a salary, savings, or current account with the issuing bank. In the case of a credit card, you don’t necessarily need to have an account with the bank.
- Rewards and Benefits: Debit cards generally offer limited rewards and cashback options. On the other hand, credit cards often provide more generous reward points, cashback, and various perks.
- EMI Facility: The EMI (Equated Monthly Installment) option on a debit card depends on agreements between the seller and the bank. Credit cards typically offer the option to convert purchases over ₹2,500 into EMI payments.
- Impact on Credit Score: Transactions made with a debit card do not affect your credit score or CIBIL score. In contrast, your credit card usage is directly linked to your credit score, and responsible usage can help build or improve it.
- Cash Withdrawal Limit: ATM/Debit cards usually have a higher cash withdrawal limit compared to credit cards, which offer additional perks like airport lounge access and other exclusive benefits.
- Annual Fees: Debit cards usually come with an annual maintenance fee ranging from ₹100 to ₹500. Credit cards, on the other hand, may have an annual membership fee starting from ₹500 and higher, depending on the type of card and its benefits.
Also Read: Don’t Miss Out: Find Out If Your Credit Card Unlocks Free Airport Lounges!
