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Differences between Credit and Debit card - Usage, benefits, and charges
Modern banking has come with a gamut of modern facilities such as online banking, phone banking and, of course, extremely useful instruments such as debit and credit cards. If you are a first-time user looking to own a debit or a credit card, it’s important that you know the difference between the two instruments, their benefits, and charges.
A debit card is a payment card with which you can withdraw the money that lies in your bank account any time from an ATM, or even make payments to merchants for purchasing stuff. Think of it as the modern version of a cashier at the branch; only the debit card is like your personal cashier available 24X7. You can apply for debit cards online from websites of lenders such as IDFC Bank. Debit cards come in handy when you don’t want to carry cash. Debit cards do not allow users to go into debt, because you only withdraw what you have.
A credit card, meanwhile, allows the user to purchase things on debt. Simply put, money taken via a credit card is a loan. It is usually issued by a bank or a financial institution, and it essentially allows the user to borrow funds. The credit card company pre-sets a borrowing limit known as the credit limit, and users can borrow funds up to that limit. Credit cards are issued with the promise that the cardholder will return the money, along with applicable interest, to the lender. The money is lent interest-free for a certain period of time, and if cardholders do not pay back the funds borrowed by that time then they are charged an interest upon the sum borrowed.
Applying for debit cards online is easy, and once you have applied for the same in institutions such as IDFC Bank, it will reach your address within seven working days. But the processing time required for credit cards is longer, and usually entails background checks and a host of other formalities and documentation.
One of the biggest benefits of debit cards is that there is no interest charged upon the money you withdraw through these cards. In fact, the bank pays you interest on the funds that you have parked with it in your savings or current account.
When you withdraw money through debit cards, there is no additional future stress. You do not need to pay the money back to the bank. It’s your own money that you are drawing from the bank. But in the case of credit cards, the user is billed, and given a 30-45 days’ time to repay the money. In the case of debit cards, there is no question of repayment, which turns out to be a major benefit.
Another benefit of debit cards issued by institutions such as IDFC Bank is that anyone holding a savings or a current account can apply for a debit card online or visit the bank branch and ask for one. No questions will be asked to the customer for the issuance of the card.
In case of credit cards, a customer’s creditworthiness is a huge criterion for issuing a card. The customer’s CIBIL score and credit and repayment history is checked before he or she is issued a credit card. The customer’s transaction history with the bank as well as debt-to-income balance is also checked before he or she is issued a credit card. But a debit card doesn’t call for all such paraphernalia. The process of issuing a debit card is simple and needs minimum or no documentation since you already have an account with the bank against which the card will be issued.
Do remember that when you run out of money or need much more than you have, credit cards can be a big saviour. Since credit cards are essentially a line of credit, you can spend the money unlimited number of times subject to the credit limit.
If you have an account in institutions such as IDFC Bank, then debit card charges such as joining fee, annual fee, processing fee are usually waived off. This is because you are already the bank’s customer so the bank will not take any extra debit card fees in processing your request for a card, which is nothing but an instrument to help you withdraw funds from your own account.
While the joining and processing fee are almost always waived off if you take a debit card from banks such as IDFC, sometimes the banks may charge an annual debit card fees in case you opt for a special type of debit card, say for instance cards with unlimited withdrawal facility etc.
In case of credit cards, there are a host of charges that usually tag along with the card. This is because credit cards are a form of a loan. Their charges include joining fee, processing fee, and annual fee, apart from delayed payment fee, prepayment penalty, and foreclosure fees.