Credit card vs debit card: What is the Difference Between them?

Credit and debit cards are the most commonly used payment methods by people. Credit cards and debit cards appear similar as both of these cards can be used to make purchases in stores and even online. Not only that, but both cards have 16-digit numbers, expiration dates, CVV codes, and EMV chips. However these cards are used differently. A credit card is a short-term loan from the card issuer that must be repaid, whereas a debit card allows you to spend money from your savings or current account. The following are the main differences between debit cards and credit cards:

What is a Debit Card?

A debit card is issued by a bank for use with your checking or savings account. The debit card is linked directly to your bank, allowing you to spend money from their bank account. When they make a payment, the amount is directly debited from their account. Debit cards do not typically charge a cash withdrawal fee, especially if you use an ATM at your bank. However, debit cards have daily spending and cash withdrawal limits.

What is a credit card?

Credit cards are typically issued by banks and a few non-banking financial institutions (NBFIs). Other authorised entities, however, may also issue these cards. Credit cards are simply cards that allow customers to buy now and pay later. When you pay with a credit card, the bank extends you credit for a set period of time, and you must pay the bank for your purchase by the due date. Banks set monthly credit limits, which can vary depending on the type of card or even your creditworthiness. Credit cards can be used to purchase goods and services at PoS terminals/e-commerce.

Key Differences between Credit Card and Debit Card

• Monthly credit limits on credit cards vary depending on the type of card, your relationship with the bank, and your creditworthiness whereas debit Cards can only be used up to the amount in your bank account. However, your bank's card may have a daily purchase limit.
• Cash withdrawals on a credit card are subject to a fee and interest whereas debit cards do not typically charge a cash withdrawal fee, especially if you use an ATM at your bank. A daily cash withdrawal limit applies to both debit and credit cards. Credit cards may also have a monthly withdrawal limit.
• Credit cards provide interest-free credit for up to 50 days, so you must pay your outstanding balance by the due date to avoid interest, whereas a Debit Card does not require interest because the amount is deducted directly from your account.
• Many credit cards do not have an annual fee, and some do, but it is waived if you spend a certain amount on the card. An annual fee is charged by a few specialised credit cards. Debit card annual or renewal fees are rarely charged by banks.
• Credit cards provide numerous benefits and perks, such as cashbacks, discounts, and, most importantly, rewards that can be converted into free flights and exciting gifts whereas debit cards also provide advantages such as discounts and cashbacks.
• In terms of usage, there is no distinction between Debit Cards and Credit Cards. Both can be used in stores and on the internet. Certain types of transactions or websites, on the other hand, may only accept Credit Cards.
• Most credit cards have basic eligibility requirements based on income, prior relationship, and creditworthiness. If you have a savings or current account, you can easily obtain a Debit Card.
• Credit cards and debit cards both have security features like SMS notifications, PIN and OTP.
• Many Credit Cards include zero liability insurance* for stolen and lost cards, which Debit Cards do not.