Confused Between Credit Card & Debit Card? Read On to Know How Both Are Different.

Also called plastic money, credit cards and debit cards, both are crucial financial tools or instruments that have become an alternative to cash. With the rising benefits of reward points, cash backs, safe transactions, etc. such financial instruments now have become a highly preferred medium of managing and handling money. While both the instruments appear to be nearly similar, the basic fact that they aren’t. Let’s understand what a debit card and credit card is and then look at a few of the main similarities and distinctions between both the products.

What’s a debit card?

Debit card gets issued by a financial institution against your savings or current account. The main point to be considered regarding debit cards is it permits you to use just the money that is available in your savings or current account at that moment. This means that as you make the payment through your debit card, the purchase amount is debited directly from your savings or current account.

What’s a credit card?

Credit card like the SBI credit card, HDFC credit card, ICICI credit card, IndusInd credit card, Axis credit card, or SBI lifetime free credit card or a credit card from any other issuer is a financial instrument that permits you to take up funds from your card issuer at the crucial luxury of making buys as and when the need arises. Additionally, to repay the funds that you borrow, you are provided a grace period of nearly 45 days with zero interest charges on the outstanding amount. When you opt for a credit card, you avail a personalised or customised credit card limit, which shows the maximum amount that you are allowed to spend using the card.

Credit card vs. debit card – What’s the similarities between both the cards?

Many often make the mistake of confusing debit cards for credit cards and vice versa. Both the card types actually hold various similarities. Let’s take a look at few of the important factors that help in justifying the confusion –

∙         Both of the cards appear identical and hold a 16-digit number on it.

∙         A credit card and debit card, both come with an expiration date that is mentioned on the card.

∙         To make the transaction using either of the cards, you require inputting the PIN code.

∙         Both the cards i.e., debit and credit card can be used for making offline and online buys.

∙         Both the cards can easily be used at any ATM to withdraw funds.

Credit card vs. debit card – What’s the difference between both the cards?

While both the cards i.e., credit card and debit card appear identical, there might be numerous features that may make them appear completely distinct. So, it is recommended that you hold at least one each of the cards to finance your immediate expenses that you might require making and strike a balance between the usage of both the products. To do so, understanding how debit cards are different from credit cards is important.

Basis for distinction	Credit Card	Debit Card
Usage of funds	Permits you to make buys by borrowing funds from the financial institution as credit, which you must return back by the due date in full to avoid incurring an extra charge.	Permits you to make purchases using the amount parked in your savings or current bank account
Spending limit	You can spend just as much as the credit card limit is provided to you by your issuer. However, it is recommended to not spend over 30 percent of your overall credit card limit as doing so would project you as a credit hungry individual, eager for credit with high probability of defaulting in the future. As an outcome, your credit score may fall by a small margin.	You can spend as much as the amount is available in your savings or current bank account.
Interest charges	Interest charges may be applicable if you miss out on your credit card repayment in full by the due date. The finance charges levied on credit cards may be as high as 52 per cent per annum.	No interest charges are applicable.
Source of funds	Money borrowed from the issuer who issued the card.	Money used or deducted from your current or savings bank account.
Impact on credit score	Your credit score may be impacted negatively if you miss out on repaying your credit card dues in full and on time, use over 30 percent of your credit utilisation ratio, or delay in making the payment of your due.	No impact on your credit score.
Cash withdrawal through ATM	Permitted but if performed you must incur finance charges on the amount withdrawn and cash advance withdrawal charges too.	Allowed without any extra charges.
Hidden expenses	A few hidden expenses you may be unaware about while opting for the card. These include annual fee, joining fee, overlimit fee, outstanding balance into EMI conversion fee, cash advance fee, finance charges, late payment fee, etc.	No hidden charges like credit cards.

FAQs (frequently asked questions)

What’s the distinction between credit card and debit card?

Credit card and debit card, both have various differences in terms of hidden expenses, source of funds, spending limits, additional benefits, eligibility parameters, etc. For example, when you make use of a debit card, then the amount you spend is debited from your savings or current account while in the case of credit card, the amount that you spend is debited from the credit card limit allotted to you. Moreover, there’s zero hidden expenses in the case of debit cards while for credit cards, there are a few hidden expenses, like finance charges, over limit fee, late payment fee, cash advance fee, annual charges, or joining fees.

Are credit cards and debit cards the same?

Obviously no, credit card and debit card, both are different. Even while there might be a few similarities in both products, there are massive distinctions between them.