What's the difference between a debit card and a credit card?
What's the difference between a debit card and a credit card?
in this age of without Cash transactions, the use of debit cards and credit cards is Increasing Day by Day. using these card, you can pay the Purchase price in Different stores with just one Swipe. Although debit cards and credit cards may seem similar, there are some major differences. Let's take a look at the differences between a debit card and a credit card so that we can use the right card in certain cases.
Debit and credit are two terms that are widely used in
accounting. In a nutshell, if the customer withdraws or spends the money in a
customer's account, the bank treats it as a debit. And if a customer takes a
loan from a bank, then the credit is listed in the bank document in the name of
that customer.
The customer spends his existing money through debit card.
On the other hand, through credit card the customer borrows / spends from his
line of credit, which is later repaid. Let's go back to the main discussion as
we have not yet found a direct link between accounting debit and credit.
Debit and credit card introduction
Debit and credit cards look alike. The difference is in
their accounting and policies. These are basically pocket size plastic cards.
In the past, cards with magnetic stripes were issued, with a magnetic field
attached to a black rectangle at the back.
From February 2019, chip and PIN based cards were made
mandatory for banks in Bangladesh. Cards with security chips inside are also
called EMV cards. These cards are more secure than encrypted and previously
black striped cards.
Usually on the front of a debit or credit card is a 16 digit
confidential card number, expiration date and logo of the issuer / partner
organization (eg Citibank, Visa, MasterCard etc.). On the other side of the
card is the CVV (another confidential number), the cardholder's signature and
the customer service phone number. However, the CVV number of the American
Express credit card is given on the front of the card.
What is a debit card?
Bank debit cards are issued to customers of Savings or
Current Accounts. Debit cards are also issued to corporate personalities. These
cards are associated with the customer's account.
If you have sufficient balance in your account, you can
withdraw money from ATM booths using debit card, make online and offline purchases
and transfer money from your account to someone else's account. Debit cards can
be used to get different types of services or to purchase products, in which
case money will be deducted from your account.
What is a credit card?
A credit card is a (usually) plastic card the size of a
debit card. Banks and other financial institutions now offer chip-based credit
cards. The name of the credit card holder, the credit card number and the
expiration date are given on the front of the credit card. CVV, credit card
holder's signature and customer care center details (usually) are given on the
other side.
As mentioned earlier, the main difference between a credit
card and a debit card is the method of accounting and payment. When you use a
credit card to make a payment, this amount is not deducted from your savings /
current account.
Credit cards allow you to transact on credit (the rest). the Credit card issuing Bank or financial insTITution Pays the money at THat time. The credit card user has to pay the amount to the bank / financial institution within the next bill payment date. Failure to pay on time will result in penalty/interest from the institution.
Each credit card has a pre-approved credit limit. This means you can use the mMoney in one/more Transactions within the allowed limits.
Card issuer
The debit card is linked to your savings account or current
account. It is usually paid by the bank where you have an account. On the other
hand, you can get a credit card from that bank (or financial service provider)
even if you do not open an account in a particular bank.
Source of funds
The primary difference between a credit card and a debit
card is the source of the funds. Necessary funds are used from your current or
savings bank account when transacting with debit card. That amount is
immediately deducted from your account.
When you use a credit card, the credit card issuer pays you
temporarily. Credit card customers are required to repay the credit card issuer
within the next billing date.
Permission to use the fund
a Debit card only Allows you to use the amount of Money
saved in your current or savings Account. If you have 10 thousand rupees in
your account, you can only use the money up to that 10 thousand rupees.
Credit cardholders, on the other hand, can use the funds up
to a pre-approved credit limit. Generally, users are allowed to use a higher
amount of money if they have an account with a high credit score or a bank
account with the user.
Interest
In the case of debit cards, money is transferred from the
fund in real time, without adding any interest. However, some banks may pay
interest on the money deposited in the customer's account which is added to the
principal balance. On the other hand, in case of delay in payment of credit
card bill, interest has to be paid. However, the customer does not get any
extra money on the unused credit limit.
Payment
Since the debit card does not require a loan, there is no
need to pay any additional interest. However, credit card holders have to pay
extra if they do not pay within the stipulated time.
Fees and charges
To continue using your debit card you will need to pay an
annual maintenance fee along with the registration fee and processing fee. You
will also have to pay such fees to continue using your credit card, but you may
also have to pay late payment fees, prepayment penalties and foreclosure
charges. It depends on the bank / issuer.
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