If one has a credit card, the accurate amount he or she can spend will rely upon the current credit limit and the balance his or her card has.
After one reaches the credit limit, the person cannot use that card for any further purchase. But after paying off at least a part of the amount, the person can use the card again.
- Credit cards allow you to borrow money to make purchases, while debit cards let you spend what you already have in your account.
- Credit cards may charge you interest and fees if you don’t pay your balance in full each month, whereas debit cards have no such costs.
- Credit cards are better for building a credit history and earning rewards, while debit cards are more suitable for controlling spending and avoiding debt.
Credit Card vs Debit Card
A credit card is a type of payment card that allows cardholders to borrow money from the issuing bank to make purchases. A debit card is a type of payment card that is linked to a checking account. Credit cards allow cardholders to borrow money to make purchases, unlike debit cards.
In the case of a debit card, as it is linked to the bank account, the funds will be pulled straight from the balance he or she has. After a transaction, one can withdraw the money immediately by using a PIN.
|Parameter of Comparison||Credit Card||Debit Card|
|Definition||With a credit card, one can take a loan to make purchases and repay it later.||With a debit card, one’s money will get deducted to make purchases directly from his or her bank account.|
|Payment||The credit card company will pay for the purchase, and the cardholder has to pay the company.||The cardholder has to pay for the purchase.|
|Source of Balance||The card company is supposed to give the balance to the credit card, and it will let the cardholder pay for any purchase. Meaning the credit card company is the source of the balance.||The bank account linked to the debit card is the source of the balance.|
|Interest||One has to pay back the exact amount by its due date; otherwise, interest will be charged.||No interest is going to be charged.|
|Limit||There is a pre-set card limit until the card can be used.||There is no limit, as the current bank account balance will let a cardholder use the money.|
What is a Credit Card?
A credit card is known to be the medium of borrowing funds to use for any purchase or investment. This card is supposed to have spending limits.
The limit can be high- or low-spending, depending on the cardholder’s creditworthiness. If a credit cardholder uses his or her card, the transaction amount will be added to the cardholder’s outstanding balance.
According to many credit card companies, a cardholder gets thirty days limit before any interest will be charged on the balance. No amount of interest will be charged if one does not pay back by the due time, which is a month.
If it is over a month, then interest will be charged after every purchase. The credit card balance and the history of each payment can affect the cardholder’s interest rates.
Some liable credit cardholders can earn points and rewards from card companies. And it happens when they use their card positively and genuinely.
This also helps cardholders to gain a solid credit score.
What is a Debit Card?
If a person wants immediate access to a fund without the hassle of writing a check to withdraw the balance, they can use a debit card as it is linked to their bank account. Yes, a debit card and a credit card may look alike, but they work differently and serve different purposes.
A debit card can be used anywhere. Wherever credit cards are applicable, a debit card can also be used there as it is linked to one’s bank account. A debit card with the Visa logo will be accepted anywhere that accepts Visa cards.
The bank has the authority to put on hold on a debit card based on the amount the cardholder has spent. The transaction of the money can happen right away, or it might take 24 hours or more which depends on the amount of the purchase and the bank.
The cardholder will get a personal identification number (PIN) to use the debit card. This PIN will come in handy when the cardholder needs to withdraw money.
Main Differences Between Credit Cards and Debit Cards
- Opening a bank account to access a credit card is unnecessary. On the other hand, one must open an account to access a debit card connected to the bank account.
- If one uses a credit card, the card company will pay the amount immediately without any delay, and it is pretty much the same as someone who has given a loan to a user. And in the debit card transaction, the money will be taken from the present fund of the cardholder’s savings account.
- While using a credit card, the cardholder might need to pay interest if any delay happens in paying back the amount. On the other hand, when using a debit card, no amount of interest will have to pay by the cardholder.
- A credit cardholder will receive a monthly statement for the transaction amount that has been used and is given by the credit card company. In the matter of debit cards, no monthly statement will be provided.
- A credit cardholder will have a credit period of the particular amount lent to the user. And for a debit cardholder, there is no credit period, as the amount will be deducted immediately from the bank account.
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Chara Yadav holds MBA in Finance. Her goal is to simplify finance-related topics. She has worked in finance for about 25 years. She has held multiple finance and banking classes for business schools and communities. Read more at her bio page.