- Credit Cards borrow against a credit limit approved by your bank
- Debit Cards withdraw from your bank account
- Which one should you use? Read on to find out
Ever been confused between a Credit Card and a Debit Card? You are not the only one. Not only do they look the same, but they are often accepted at the same place.
But that is where the similarities end. The main difference between the two is the source from which they draw money. While a Credit Card charges the money against your approved credit limit, a Debit Card debits the amount from your bank account.Let’s take a closer look.
What is a Credit Card?
With a Credit Card, you can borrow money against a credit limit set for you by the issuing bank. Credit Cards give you an instant flush of liquidity and the transaction details are reflected in your Credit Card statement at the end of each month.
While making a purchase with a Credit Card, money is not deducted from your bank account – instead, the amount needs to be paid back to the bank within a stipulated time. Note that your repayment history affects your credit score, which banks look at before issuing you Loans and Credit Cards.
What is a Debit Card?
A Debit Card withdraws money from your bank account by pegging the amount you spend on a purchase. The merchant that you’re transacting with notifies the respective bank of the transaction and the money is then transferred to the merchant’s account. The entire process takes a few seconds. A personal identification number (PIN) is required authorise a Debit Card transaction, to prevent fraud.
Having gone over what these cards mean in their own right, here are the basic differences between the two:
1. Credit Limit:
While a Credit Card allows you to borrow from your approved credit limit, a Debit Card allows you to withdraw from your checking account balance. However, banks might put a limit on the amount you can withdraw in a day. With Debit Cards, the transaction will not go through if you do not have sufficient money in your account. These limits are already integrated into these products.
2. Fees Charged Against Withdrawal:
Generally, with a Debit Card, the bank limits the number of free withdrawals you can make from its own ATMs as well as those of other banks. On further withdrawals, a nominal fee is charged. However, if you withdraw money using a Credit Card from an ATM, the transaction is accompanied by an instant interest rate that is levied on the withdrawn amount. A transaction fee is also charged for such withdrawals.
Rewards on Debit Cards might take a little longer to redeem. But a Credit Card, provided you use it wisely, can offer the most exciting of rewards: most common of them being cash refunds on purchases.
Both Credit Card and Debit Card have their benefits. While a Credit Card is your ally in an emergency, giving you access to instant cash, a Debit Card allows you to withdraw money from your account for routine needs. Click here to know more about RBL Bank Rewards Program.