Debit and credit card offer people the convenience of not having to carry cash around. Both are accepted in all places. They even have same features like logos and swipe action.
So, what’s the difference between debit and credit card? The key difference is from where the cards get the money. The former pulls from your bank account, while the latter charges to your credit line. Let’s get to know both cards in detail and their difference.
The debit card is issued by your bank. It enables their customer to access funds directly without having to make cash withdrawals or write paper cheques. It is linked to your account and can be used everywhere it is permitted.
When a credit card is used, bank places hold on the amount spent. Depending on your bank and purchase amount the funds get transferred instantly from your account or are held by bank for a couple of days.
The debit card is used to withdraw cash from checking account using a special PIN [Personal Identification Number]. You will be asked for the PIN number or sign a slip. People trying to stay on budget find using debit card a great option.
Credit card is used for making purchase on-credit. It is a debt tool that offers a person high or low spending limit based on his/her creditworthiness. When the credit card is used to pay, the amount gets included in your outstanding balance, automatically.
Basically, every credit card companies offer customers a time of thirty days to pay their outstanding balance before charging interest. There are few companies that charge interest as soon as your credit starts accumulating.
The rate of interest on credit cards is notoriously high. It is the way credit card companies make profits. Therefore make sure that your outstanding balance gets settle in full every month.
Debit versus credit cards
Understand the difference between debit and credit cards with an example.
John and Ruby buy a TV from Rosh Electronics for $495.
- John uses a regular debit card. As soon as, the card gets swiped his bank puts a hold of $495 on his checking account. Thus, he will be prevented from spending this money on some other items. When the store sends transaction details to his bank, the funds get electronically transferred to the store.
- Ruby uses a credit card. As soon as, the credit card is swiped her credit card provider adds the purchase amount automatically to her card account as outstanding balance. She has time to pay her dues until the end of the billing month. She can pay all or some of the amount as revealed in her statement.
Credit cards are debt tools, where the cardholder is borrowing funds from the credit company and is obligated to repay it. On the other hand, debit cards are not debt tools as the cardholder is connecting to his/her bank account. The debit card user will not owe any money to the 3rd party because the purchase was made from his/her available funds.