Most young Indians either salaried or businessmen carry at least one of these cards (either credit or debit) for regular transactions like ATM cash withdrawals, fuel, bill payments, grocery purchases as well as bigger transactions including fee payments, flight bookings, and consumer durable purchases. However, not many customers are aware of the key differences between a credit card and a debit card and which of these is better. Here, we have listed the major difference between debit cards and credit cards, as follows:
Credit Cards vs. Debit Cards
|Particulars||Credit Card||Debit Card|
|Availability of Funds||Borrowings from the card issuer||Deductions from your savings or current account|
|Spending Limits||You can spend within your pre-fixed credit limit||You can spend only up to the balance available in your savings or current account|
|Advantage||Short term loan as per your credibility||Saves you from debt-trap as you spend as per available funds|
|Purchases||The card issuer pays for you purchases which you pay back by the due date||You pay directly from your bank account|
|Statements||Billing statements for each cycle that includes all spends you make with the card||No specific billing statements; Debit card spends are mentioned in the savings/current account passbook|
|Important Fee & Charges||Joining fee, annual fee, late payment fee, interest charges, etc||Cash withdrawal fee, annual fee (in some cases), etc|
|Interest||Include interest rate charges in case of late payment||No interest charges are applicable|
|Rewards and cashback||Extensive in comparison to debit cards (may vary across card to card)||Minor rewards and cashback benefits|
|Application||You need to apply for a credit card with the issuer to have one||Often offered along a savings/current/salary account|
|Repayment||Monthly Repayments||No Repayments|
|EMI Facility||Mostly offered on transactions above Rs. 2,500 (may vary across issuer)||Offered on limited transaction as per vendor-bank agreement|
|Impact on Credit Score||Impacts your credit score directly||No direct impact on credit score|
Based on our analysis as per the comparison table above, note that:
- In terms of the card application, it is easier to avail of a debit card, in comparison to a credit card as you are required to fulfill provider specific credit card eligibility criteria.
- The primary difference between a debit card vs. a credit card is where the money comes from and how much money you can use. With a debit card, the money comes directly from your savings account or your current account. Therefore, the transaction limit depends upon the amount that you have invested in either of the accounts mentioned above.When you apply for a credit card, on the other hand, a separate credit card account will be opened. The limit available on this account is decided by the lender based on factors like your CIBIL score, your credit utilization ratio, and your income. Therefore, a credit card lets you spend more than the money you have, whereas, with a debit card, you can spend only up to the amount you have in your savings/current account.
- Also, since in the case of debit cards, the amount is deducted from your savings account or your current account directly, you do not have to make any repayments on your debit card. On the other hand, with a credit card, monthly repayments have to be made depending upon the purchases made. You have the option of paying the minimum amount due, a little over your minimum amount due, or the total amount outstanding on your card each month. You will also have a fixed due date by which you have to make this repayment. Note that, you can make the credit card payment within the grace period decided by the card issuer(typically 45-50 days).
- Note that, the facilities available with a debit card are fewer in comparison to credit cards. Depending upon the type of credit card you have, you may be eligible for several benefits such as discounts on your purchases and free goodies. You can also avail reward points with each transaction made on the credit card that you can use to redeem on certain purchases in the future. With credit cards, you also have the option of converting your transactions into EMIs. This is a facility that you do not have with debit cards generally, unless there is an ongoing offer on your debit card in agreement with selected vendor.
- Credit cards provide better safety as compared to debit cards in case of lost/stolen cards or unauthorized transactions. Any fraudulent transaction via debit card means the amount is deducted from the account instantly whereas in credit card there is no impact on funds at hand in case of frauds. However, it must be ensured that you report any loss/misuse of the card, immediately to the card issuer by contacting their customer care.
- Payment of the credit card dues by the due date can help you improve your cibil score. On the flip side, not paying your credit card dues on time is certain to impact your credit ratings negatively. In the case of a debit card, there is no impact on the credit ratings as it is not a credit instrument.
- There are various types of credit cards offering rewards such as air miles, fuel points, complimentary lounge access and cashback rewards among others. These benefits are often not present on debit cards, and if present are not that extensive. Effective utilization of credit cards can help users earn more points and utilize these points for future transactions. For example, many banks offer air miles cards that give air miles rewards based on the amount spent by you with the card. The miles can then be redeemed in lieu of free flights, cabs, or hotel bookings.
Benefits of Credit Cards and Debit Cards
Bottom Line: Credit cards, if used smartly and by someone with good financial discipline, can provide huge benefits to the cardholder. However, if you are an impulsive shopaholic and use the card without efficiently planning the repayment part, then better stick to debit cards as they limit your chances of spending beyond your means.