Understanding the Fundamental Differences Between Credit Cards and Debit Cards

Understanding the disparities between the credit card and debit card can empower you to make informed financial decisions. Both cards offer access to funds, but do so very differently. They also have their own perks and features, which cater to a wide range of financial needs.

However, there are several distinguishing factors that make them different from each other. Here’s a quick look into how these cards work, their differences, and their pros and cons.

Debit Card and Credit Card: Overview

In simple words, a debit card is an instrument that gives you access to the funds available in your savings or current account. On the other hand, a credit card gives you instant but short-term credit, up to a certain limit, from your issuer.

The working process of a debit card is very straightforward; you simply add the money to your account and then withdraw it as required. So, there is no billing or interest charge.

On the other hand, a credit card isn’t linked to an account but comes with a credit limit that you can use. You can get an interest-free period and once that ends, you get a bill. You need to pay it on time to avoid interest and other charges. Let’s delve into this easy guide that breaks down the differences between credit card and debit card.

Debit Cards vs Credit Cards

Here is a side-by-side comparison to help you compare and understand the difference between a credit card and a debit card.

Particulars	Debit card	Credit Cards
Fund source	The amount gets debited from your savings or current account	Instant credit from the bank or financial institution
Billing	There is no billing, but you get a monthly statement containing all your withdrawals and deposits	You will get a billing statement every month, which will contain the total amount you need to pay. It is calculated based on all transactions, fees, charges and penalties, which will also be provided in the bill
Fees and charges	Banks levy an annual fee, also known as AMC (Annual Maintenance Charge)	Most issuers charge joining and annual fees
Interest	Banks offer interest on the savings account but not on the current account deposit	Issuers charge interest on the due amount after the due date
Limit	You can only withdraw funds available in your account	You can utilise funds up to the predetermined limit
Credit score	Does not affect your credit score	Timely repayment helps improve your credit score
Fund growth	It helps in keeping funds secure and earns interest	There is no growth in wealth as the limit is a line of credit
Shopping	Offers nominal rewards and cashback, depending on the bank and card	Gives you exciting offers, rewards, season discounts and cashback on most purchases

Pros and Cons of Debit and Credit Cards

In addition to the differences, here are some pros and cons of debit and credit cards that you must consider.

Type of Card	Pros	Cons
Debit Cards	There is no debt involved It is cost-effective, as interest is not charged You can withdraw cash without high interest charges Grows your money without any risk	Reduces your savings May have to pay for withdrawals from another bank’s ATM Have a risk of fund loss in case the ATM PIN gets leaked Doesn’t build credit score and history
Credit Cards	More convenient and secure than carrying cash or debit cards Improves credit score with timely bill payment Gives rewards and cashback Gives you exclusive discounts and offers at partner stores An excellent option to access funds for emergencies	Have high interest rates Attracts different types of fees and charges Missing payment can negatively affect your credit score Poor management can lead you into a debt trap

With these details, you can make an informed decision. A debit card provides you easy access to your savings without adding to your financial liabilities. However, credit card offers give you cashback, discounts, and rewards, which can help you save with every payment.

One such card you can consider is the One Credit Card, a premium metal credit card that comes with a wide variety of perks. For instance, you can earn up to 5X reward points, which you can redeem without any cost. You can also easily browse through exciting offers and discounts near you through the One Credit Card app and save on your spending.

Moreover, you can convert all your big-ticket purchases into EMIs without any hassles. With the availability of add-on credit cards, you can share your limit with up to five family members without any additional cost. Apply online to get yours and start spending smartly.