In this age of cashless transactions, the use of debit cards and credit cards is increasing day by day. Using these cards, you can pay the purchase price in different stores with just one swipe. Although debit cards and credit cards may seem similar, there are some major differences. Let’s take a look at the differences between a debit card and a credit card, so that we can use the right card in certain cases.

Debit and credit

Debit and credit are two terms that are widely used in accounting. In a nutshell, if the customer withdraws or spends the money in a customer’s account, the bank treats it as a debit. And if a customer takes a loan from a bank, then the credit is listed in the bank document in the name of that customer.

The customer spends his existing money through debit card. On the other hand, through credit card the customer borrows / spends from his line of credit, which is later repaid. Let’s go back to the main discussion as we have not yet found a direct link between accounting debit and credit.

Debit and credit card introduction

Debit and credit cards look alike. The difference is in their accounting and policies. These are basically pocket size plastic cards. In the past, cards with magnetic stripes were issued, with a magnetic field attached to a black rectangle at the back.

From February 2019, chip and PIN based cards are mandatory for banks in Bangladesh Is done. Cards with security chips inside are also called EMV cards. These cards are more secure than encrypted and previously black striped cards.

Usually on the front of a debit or credit card there is a 16 digit confidential card number, expiration date and logo of the issuer / partner organization (eg Citibank, Visa, MasterCard etc.). On the other side of the card is the CVV (another confidential number), the cardholder’s signature and the customer service phone number. However, the CVV number of the American Express credit card is given on the front of the card.

What is a debit card?

Debit cards are issued by the bank to the customers of savings or current account. Debit cards are also issued to corporate personalities. These cards are associated with the customer’s account.

If you have sufficient balance in your account, you can withdraw money from ATM booth using debit card, make online and offline purchases and transfer money from your account to someone else’s account. Debit cards can be used to get different types of services or to purchase products, in which case money will be deducted from your account.

What is a credit card?

A credit card is a (usually) plastic card the size of a debit card. Banks and other financial institutions now offer chip-based credit cards. The name of the credit card holder, the credit card number and the expiration date are given on the front of the credit card. CVV, credit card holder’s signature and details of customer care center (usually) are given on the other side.

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As mentioned earlier, the main difference between a credit card and a debit card is the method of accounting and payment. When you use a credit card to make a payment, this amount is not deducted from your savings / current account.

Credit cards allow you to transact on credit (the rest). The credit card issuing bank or financial institution pays the money at that time. The credit card user has to pay the amount to the bank / financial institution within the next bill payment date. Failure to pay on time will result in penalty / interest from the institution.

Each credit card has a pre-approved credit limit. This means you can use the money in one or more transactions within the allowed limits.

The difference between a debit card and a credit card

Card issuer

The debit card is linked to your savings account or current account. It is usually paid by the bank where you have an account. On the other hand, you can get a credit card from that bank (or financial service provider) even if you do not open an account in a particular bank.

Source of funds

The primary difference between a credit card and a debit card is the source of the funds. Necessary funds are used from your current or savings bank account when transacting with debit card. That amount is immediately deducted from your account.

When you use a credit card, the credit card issuer pays you temporarily. Credit card customers are required to repay the credit card issuer within the next billing date.

Permission to use the fund

A debit card only allows you to use the amount of money saved in your current or savings account. If you have 10 thousand rupees in your account, you can only use the money up to that 10 thousand rupees.

Credit cardholders, on the other hand, can use the funds up to a pre-approved credit limit. Generally, users are allowed to use a higher amount of money if they have an account with a high credit score or if the user has a corporate account with a bank.

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Interest

In the case of debit cards, money is transferred from the fund in real time, without adding any interest. However, some banks may charge interest on the money deposited in the customer’s account which is added to the principal balance. On the other hand, in case of delay in payment of credit card bill, interest has to be paid. However, the customer does not get any extra money on the unused credit limit.

Payment

Since the debit card does not require borrowing, there is no need to pay any additional interest. However, credit card holders have to pay extra if they do not pay within the stipulated time.

Fees and charges

To continue using your debit card you will need to pay an annual maintenance fee along with the registration fee and processing fee. You will also have to pay such fees to continue using your credit card, but you may also have to pay late payment fees, prepayment penalties and foreclosure charges. It depends on the bank / issuer.

Monthly statement

There is usually no monthly statement for a debit card. You can view your debit card transactions through your bank account statement. A monthly statement is provided for the credit card. This is necessary as the transaction amount is supplied on credit.

Advantage

Debit cards usually do not have any significant benefits. But credit cards offer many benefits. Using a credit card you can enjoy benefits like cash back, discounts, partner privileges, and reward points. Of course, certain debit cards often offer discounts or cashback, although not much more than credit cards.

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Conclusion

The bottom line is that debit cards are a lot like prepaid mobiles. As long as you have money in your account, you can transact with it. Credit cards, on the other hand, are post-paid. This is a card loan from a bank, which means you have to repay it with interest and even penalty if you do not repay it within the stipulated time. Otherwise you have to face legal action. Hopefully the difference between a debit card and a credit card is clear to you now.

What kind of card do you prefer? Debit or credit? Request to comment.