3 Differences Between Credit Cards and Debit Cards

Credit Cards and Debit Cards

In the world of business and finance, when it comes to purchasing goods or paying for services without checks or physical cash, both credit cards and debit cards can come in handy, but their similarity in being used to perform certain functions does not make them the same.

Is a credit card the same as a debit card? The answer is no. While a credit card is used to pay for products or services from a line of credit, a debit card is used to perform the same function but from an individual’s bank account.

 

What are Credit Cards and Debit Cards

Credit Card

A credit card is a card issued to an individual which allows them to buy products or pay for services from the line of credit of the issuer. This line of credit serves as a reservoir of cash from which that individual can borrow money to pay for their products or services and repay it, together with additional fees, at an agreed price.

For instance, if a credit card is issued to Mr. A with a total of $100 on its line of credit, he can pay for his purchases or services rendered to him with the card up until he has exhausted the total amount of money in it, after which he must repay the money($100) to the issuer of the card.

 

Debit Card

A debit card is a type of card that can be used to replace physical cash when it comes to making purchases or paying for services. A debit card works just like a credit card except that, in the case of the latter, the money used to make purchases or pay for services does not come from a line of credit but rather from the bank account of the cardholder.

So, in this case, if Mr. B wants to pay for a product or a service but doesn’t have enough cash with him, provided he has enough money in his bank account to cover the cost of what he is paying for, he can use his debit card to make the payment.

 

Advantages and Disadvantages of Using Credit Cards and Debit Cards

Some of the advantages of using a credit card are:

  • One of the major advantages of a credit card is that it allows one to make purchases or pay for services when they are short on cash. For instance, if you are expecting a particular amount of money at the end of the month but you need to purchase a laptop before then, you can easily purchase with a credit card and repay it when the money eventually arrives at the end of the month.
  • A credit card can help you keep a record of your finances. This is possible because some credit card companies do keep their users updated on their spending.
  • A credit card can also help to solve purchase issues. For instance, if you are returning a product you bought from a merchant and there’s a dispute over the price of the product you bought, you can simply show them your credit card spending history.

 

On the other hand, some disadvantages of a credit card include:

  • A credit card usually comes with interest for unpaid debts, and as such, when a cardholder is not able to pay their debt at the end of the month, this interest will continue to pile up and this might affect their credit card score in the long run.
  • Credit cards tend to put one into debt, especially because they allow one to spend money they don’t even have. The luxury of having to spend what one doesn’t have might make them overspend and, as such, put them into debt.
  • Credit card users might also get charged late fees when they don’t meet payment deadlines. This can also affect their credit score in the long run.

 

Advantages and Disadvantages of Using a Debit Card

Some of the advantages of using a debit card are:

  • A debit card can be gotten easily. Most banks give out debit cards for free to customers who are opening an account with them for the first time.
  • A debit card can be used both to pay for products or services and to withdraw cash from an ATM.
  • Since it is linked to your bank account, a debit card allows one to pay for products or services directly, hence eliminating the possibility of accruing debt.

 

Some of the disadvantages of a debit card are:

  • It does not offer one the luxury of buying products or paying for services on credit. One can only make transactions based on their bank balance.
  • It is difficult to detect when a debit card is being used for fraudulent activities.
  • When a debit card is used to withdraw money from ATMs other than those of the card’s bank, the cardholder is usually charged a fee.

 

Similarities between Credit Cards and Debit Cards

  • One thing credit cards and debit cards share in common is that they can both be used to pay for products and services in the absence of physical cash.
  • Credit cards and debit cards also share the same property features like containing a card holder’s name, card number, hologram, EMV chip, expiration date, signature strip panel, magnetic stripe, card security code, and issuing bank logo, among others.

 

Differences between Credit Cards and Debit Cards

We’ve discussed the similarities between credit cards and debit cards already, but what then differentiates one of these cards from the other?

 

  • A credit card is used to pay for products or services from a line of credit, while a debit card is used to pay for products or services from the cardholder’s bank account.
  • Fees related to credit cards include foreign transaction fees, balance transfer fees, return payment fees, late payment fees, e.t.c., while fees related to debit cards include ATM fees (for using ATMs outside your network), overdraft fees, PIN transaction fees, e.t.c.
  • A credit card allows one to pay for purchases and pay later, while a debit card allows one to pay for purchases immediately.
  • A credit card allows one to spend more than their limit provided they can repay their debt at the end of the month, while a debit card only allows one to spend based on the balance in their bank account.

 

Credit cards and debit cards are two different types of cards. While they both perform similar functions, like being used to pay for products and services without the need for physical cash, they also differ in a lot of ways, some of which have been explained in this article already.

 

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