Cards have become the star payment method among people of all ages. They are comfortable, easy to use and do not take up too much space in our wallets. In addition, these days they are the best payment method because they are more hygienic than cash and there are even establishments where you can only pay using a card. But despite being common, not everyone knows what it means to have a credit card and a debit card. Although both expressions are treated as synonyms, they are not synonymous and we will discover this below by looking at the differences between the debit and credit cards . What is the difference between debit and credit card?
Differences between debit and credit cards: how to distinguish them?
Credit and debit cards are tools that have become common in the daily lives of millions of people . It is thanks to these pieces of plastic that we can pay large amounts of money at once without having to carry everything with us in coins and bills. This is one of the main reasons why more and more people use cards, being a very practical method and it is not necessary to have to count the money that has to be paid before making the transaction.
In addition, they are considered a very safe payment method since in many operations it asks us to enter a secret number, especially if they are high payments or transfers. Virtually all banks have mobile applications so that we can manage our account associated with the card in a virtual way and, in the event that it is stolen, we can disable it before the wrongdoer reaches into our savings.
Many are those who believe that it is a matter of years before cash is completely replaced by cards . In fact, the COVID-19 pandemic and the hygienic measures that have accompanied it have made the vast majority of establishments advise their customers to pay with credit or debit cards, and some even no longer accept cash payments.
But despite the fact that they are widely used, not everyone is aware of what type of card they have and what their benefits are. Because the words “credit” and “debit” are very similar and are used in similar contexts, many people believe that having a credit card and having a debit card are the same, or that there are simply banking companies that prefer to call cards in one way or another, but the truth is that there are differences between debit and credit cards, some very important to take into account the next time we use one of these pieces of plastic.
1. Where does the money come from
The main difference between debit and credit cards is where the money we use to pay with them comes from.
On the debit card, the payment is taken from the money in the cardholder’s account . Debit cards are associated with the balance that the customer has in their checking account and, when paying, the payment is charged directly to the cardholder’s account. The debit card owner will be able to pay up to the limit of the funds in his account. What is the difference between debit and credit card?
Instead, the credit card allows us to pay even if we do not have money in our account. This money that we do not have is given to us by our bank and, therefore, it is a loan and we have borrowed from our financial institution. We will have to return the money that we owe to the bank in the time in which our financial institution has indicated us in addition to paying interest on it.
In order for them to give us a credit card, the bank has to study our economic situation, making sure that they do not give it to someone who will not be able to return that money in the short or medium term . It ensures that we are solvent and studies our viability. Even if they give it to us, we must bear in mind that the credit card also has a limit and it will not be possible to continue requesting loans indefinitely.
The ways to return the credit, that is, the money that the bank has lent us, are several, the main ones being the following three:
- At the end of the month: It takes place on one day of the following month, which is known as the settlement day and is specified in the contract.
- Percentage. Each month a percentage of the credit will be paid.
- Fixed fee or “revolving”: consists of paying a fixed amount established.
2. Ease of obtaining
There are also differences in terms of the ease of obtaining a debit and a credit card.
The debit ones are the easiest to get, since to have one we only need to have an account with money or for the bank to open one for us . Depending on the type of account we have with our bank, our checking account can be made up of a passbook and a debit card or, directly, only have the debit card as a method to extract and use money. What is the difference between debit and credit card?
In the case of credit cards, this is a bit more complicated. Since no bank is going to give us their money just like that, financial institutions make sure before giving us a credit card that we are people who can return the money they leave us. If the bank does not think that we are solvent, it will not give us a credit card; if yes, it will determine the maximum money limit that you will lend us.
Another interesting difference between both types of card is in the commissions that are paid for each of them. This depends on each bank and an annual commission is usually charged for each type of card. However, the commission that is usually cheaper is that of debit cards. As each bank is different, the commissions that they can charge us for the cards is a very important aspect to consult before making any type of card in any type of bank.
4. Withdraw money at ATMs
There are also differences between these two types of cards when withdrawing money at ATMs.
As a general rule, if the debit card is used at an ATM of the financial institution itself, no commission will have to be paid . The debit card works the same way that lifelong cards do, and there are even checking accounts that only have cards to get cash in these machines.
On the other hand, if money is withdrawn with the credit card, the bank will charge interest when the balance of the card is paid , which is usually quite high, reaching 20% per year. The financial institution will charge us interest for advancing that money, since the cash withdrawal with our credit card is made against the credit line that the bank has granted us, not against our own checking account.
It is for this reason that it is never recommended to use a credit card to withdraw money from an ATM, even if it is an ATM of our own bank. It should only be done if there is a force majeure reason and there is no balance in the account. What is the difference between debit and credit card?
5. Discounts and insurance
One point in favor of credit cards is that, when making purchases, there are cards that offer us discounts in some establishments, give us points associated with purchases or offer us advantages based on the monthly amount spent. In addition, credit cards usually have a series of free insurance such as protecting ourselves in case we buy a defective object , while debit cards do not have this type of insurance nor do they offer discounts.
Both debit and credit cards are very practical in our daily lives. Credit cards are a good option in case you need financing for contingencies or high-cost purchases, but it is also necessary to understand that the money that the bank gives us will have to be returned and, until this has been done, we will be in debt with our financial institution. Not controlling what you pay with credit cards can mean ending up in serious debt .
Instead, debit cards are just a quick way to pay with our own money without resorting to cash. Using these cards implies spending money from our own checking account and, once this is over, we will not be able to pay with the card until we have injected money into our account again. This has the disadvantage that, if we are short of money in a specific situation, we cannot pay, but it also has the advantage that we do not get into debt with the bank.