Major Differences between Debit and Credit Cards

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Major Differences between Debit and Credit Cards

Debit and credit cards look similar: both are plastic cards that enables you to make payments. You can use it online or in store.

However, whilst with a debit card you pay immediately from your own bank account, with a credit card, you pay using money that the credit card company or bank has loaned you and then pay the company or bank back later.

Though they may look very similar they are different in several key ways. The major differences between Debit and Credit cards are given below:

1. Different etymologies. ‘Debit’ comes from the Latin for ‘to owe’. ‘Credit’ comes from the Latin for ‘to believe’.

2. Payment from your money vs payment on credit: Debit cards make payments using money you actually have in your account. Credit cards make payments from money that has been loaned to you by a bank or credit company.

3. Different interest rates. Credit cards usually have higher interest rates than debit cards. You may pay interest on a debit card if your money is coming from your overdraft, otherwise you will not usually pay interest on payments.

4. Different charges involved. With a debit card, you can withdraw more than your bank-balance if you are given over draft facility. In that case,  you may be charged for going over your overdraft. However, with a credit card, you can be charged for exceeding your credit limit. In addition there are penal charges involved in using a credit card: if you are late in paying your credit card bill, you will have to pay additional money.

5. Usefulness. Credit and debit cards are useful in different ways. Credit cards can be good for getting you out of a sticky situation – for instance if you are hit by a bill before payday. Debit cards are useful for making everyday payments without fear of higher interest rates.

6. Repayment. When you pay with a credit card, you need to repay the bank or credit company on a future date. This is not the case with a debit card – you have paid with your own money.

7. Limits on spending: With a debit card, the limit on how much you can spend is usually however much money is in your account (including any overdraft facilities). With a credit card, the limits will be set by the credit company.

8. Credit rating: Overspending on your credit card or missing repayments can harm your credit rating. Overspending on your debit card may incur charges if you go over your overdraft limit but it does not usually harm your credit rating.

Conclusion: A credit card may seem attractive, but it is important to bear in mind factors like late payment fees and higher interest rates.


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