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Credit Card vs Debit Card – What Are the Differences?

Oct 12, 2018

In today’s world, both credit and debit cards are popular among people of all income groups. However, many often get confused about the difference between a credit card and a debit card. This can further lead to poor financial decisions if the user isn’t sure about which one to choose and when to use.

Nowadays, credit or debit cards are used for nearly any kind of purchase or financial transaction. Offered by several financial institutions across India, both these electronic payment cards serve the purpose of eliminating the need to carry physical cash.

A debit card uses your savings while credit cards put it against your line of credit. Credit cards come with comparatively more offers, discounts, etc. than debit cards that can be availed easily. Also, a debit card is only available if you have an existing account with a financial organisation. Whereas you can be a credit card holder even without having an account.

There are a few more differences between a credit and a debit card. Let’s take a look.

Available funds – Debit card can only access the funds available in a savings or a current account of the user. It limits the amount of money one can avail.

A credit card is a type of unsecured loan which fetches credit from the lender. This gives access to instant funds whenever there’s a cash crunch. Also, credit cards have a pre-set limit, and one can avail finance up to that specified amount.

EMI facility – Generally, debit cards cannot be used to avail EMI facilities. However, many financial institutions provide affordable EMIs on credit cards. Some even allow users to divide their credit cards bills into easy EMIs.

Repayment method – If you are using a debit card, you won’t have to repay anything to the financial institution. On the contrary, a credit card due needs to be repaid within a due date every month. However, a borrower enjoys the flexibility to repay the amount within a certain time period with no interest levied.

Monthly statement – Since debit card deducts the utilised amount from your account, no statement is issued separately. In case of credit cards, however, users receive a monthly statement with details of every transaction. It includes purchases, total outstanding credit, minimum due amount, due date, available limit, etc.

Access to cash – You can withdraw money from ATM using your debit card for a limited number of times without any interest, transaction fee or service charge. Credit cards generally levy charges for ATM withdrawals.

However, with a nominal processing fee of 2.5% of the withdrawn amount, it offers interest-free ATM withdrawals for up to 50 days.

Eligibility criteria –A savings account is mandatory to own a debit card and you will need to meet a set of eligibility criteria to apply for and avail a credit card. These include an applicant’s CIBIL score, debt-to-income ratio, existing customer portfolio, etc.

Fraud liability – Financial institutions offer little to no fraud liability in case of a debit card. On the other hand, credit cards come with high fraud liability and also provide insurance in case there has been a misuse of your card. It also covers loss in case of a theft.

Both credit and debit cards have their individual advantages. However, more and more people are opting for credit cards because of their high limits, instant access to funds, and the option to repay the amount with convenient EMIs.

Now that you know the difference between a credit card and a debit card, utilize them wisely for better financial management.

Author Bio:

Gaurav khanna is an experienced financial advisor, digital marketer and writer who is well known for his ability to market trends. You can find Gaurav on Linkedin.

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