Key Difference Between the Two Cards: Debit and Credit Card

During the financial year 2018-2019, India witnessed a surge of 10.2 million in credit cards and a decline of over 21 million debit cards. Even with a subsequent drop in the number of debit card users, these maintain an approximate figure of 884 million, which is quite higher than 48 million credit cards. 

The reason behind this huge difference could be that individuals –

• Prefer to spend their money instead of taking credit.
• Are unaware of the financial benefits coupled with credit cards.

Even with several latest features and benefits, the popularity of credit cards is still nominal. The basic difference between a credit card and debit card lies in their usage. 

A debit card allows you to withdraw the money you have in your savings or current account, whereas you borrow funds from a credit card, which should be repaid within the stipulated time (one month). 

Let us look at the key differences in terms of –

Functionality

While using a debit card for withdrawal or purchase, the amount is deducted from your available account balance. 

For credit cards, lending institutions pay on your behalf, which you need to pay later within the grace period. 

Accessible funds

This is one major difference between credit cards and debit cards. For debit cards, funds accessible completely depend on your account balance. You can withdraw/spend any amount equal or less than your available account balance. 

Every credit card comes with a credit limit, which is the maximum spending or borrowing limit with that card. This limit is determined by factors such as type of credit card, borrower’s income, credit history, debt to income ratio, limits on other credit cards etc. 

Levied Interest rate

While there is no scene of interest rate with debit cards, credit cards can levy an interest rate if you fail to pay before the due date. 

Since cardholders can make several transactions with credit cards, they are provided with a grace period of up to 45 days. If one fails to pay before this grace period, then interest is levied only on the borrowed amount. 

Make sure to know how to read your credit card statement correctly to avoid such scenarios.

Rewards and benefits

Applying for a new credit card meaning is to avail welcome bonus and other such discounts, gift vouchers, cash backs, and offers. More offers and discounts are available on the purchase of products and payment of services like movies, hotel, and flight booking with credit cards as compared to debit cards. 

Credit history

One significant difference between a credit card and debit card is that the latter can’t help in building a credit history. 

However, credit cards can be used to build a credit history and improve credit score. A credit score of 750 and above is considered good. 

30% of the credit limit should be utilised to improve the credit score. Hence, it is important to know how to use a credit card wisely to ensure you reap out the desired benefits. 

EMI payments facility:

Purchasing a product with a debit card means you have to pay the total amount at one go at the time of payment. 

However, purchasing a product with a credit card meaning, you can convert them into EMIs and pay with ease. Also, attractive interest rates make it easy to purchase. 

Emergency personal loan

Unlike debit cards, few credit cards let you borrow an emergency loan amounting to the unused amount of your credit card.

The Bajaj Finserv RBL Bank SuperCard is one such credit card that lets cardholders borrow the unutilised cash limit with a 0% interest rate for 90 days.

Bajaj Finserv also provides pre-approved offers on credit cards that make the process to avail financing less complicated and time-saving. The pre-approved offers are available on several financial products including home loans, personal loans, business loan, etc. Fill in your name and contact number to check your pre-approved offer. 

The key difference between a credit and debit card is primarily the mode of usage and rewards. Credit cards can be significantly beneficial for those who tend to make extensive online and offline transactions.