The 5 differences between debit and credit cards

Here are the keys to distinguish between credit and debit cards.

Cards have become the star form of payment among people of all ages. They are convenient, easy to use and don't take up too much space in our wallets.

Moreover, they are nowadays the best method of payment 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, and we are going to discover this below by seeing the differences between debit and credit cards..

Differences between debit and credit cards: how to tell them apart?

Credit and debit cards are tools that have become commonplace 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 it all on 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 not having to count the money to be paid before making the transaction.

In addition, they are considered as a very safe payment method since in many transactions we are asked to type in a secret number, especially if they are high payments or transfers. Practically all banks have mobile applications so that we can manage our account associated with the card virtually and, in case it is stolen, we can disable it before the wrongdoer gets his hands on our savings.

Many are of the opinion that it is only a matter of years before cash is completely replaced by credit cards.. In fact, the COVID-19 pandemic and the hygienic measures that have accompanied it have led the vast majority of establishments to advise their customers to pay with credit or debit cards, and some even no longer accept cash payments.

But although they are widely used, not everyone is aware of what type of card they have and what its benefits are. Because the words "credit" and "debit" are so similar and are used in similar contexts, many people believe that having a credit card and having a debit card are the same thing, or that there are simply banking companies that prefer to call the cards one way or the other, but the truth is that there are differences between debit and credit cards, some very important ones to keep in mind the next time we use one of these pieces of plastic.

1. Where the money comes from

The main difference between debit and credit cards is where the money we use to pay with them comes from.

With a debit card, the payment is taken from the money in the cardholder's account.. Debit cards are linked to the customer's current account balance and, at the time of payment, the payment is charged directly to the cardholder's account. The owner of the debit card will be able to pay up to the limit of the funds in his account.

On the other hand, the credit card allows us to pay even if we do not have any 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 become indebted to our financial institution. The money that we owe to the bank we will have to pay it back in the time that our financial entity has indicated to us in addition to paying an interest for it.

In order to get a credit card, the bank has to study our economic situation, making sure that it is not given to someone who will not be able to pay back the money in the short or medium term.. It makes sure that we are solvent and studies our viability. Even if they give it to us, we must keep in mind that the credit card also has a limit and we will not be able to continue borrowing indefinitely.

The ways to repay 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: this is done on a day of the following month, a day which is known as settlement day and is specified in the contract.
• Percentage. Each month a percentage of the loan will be paid.
• Fixed installment or "revolving": consists of paying a fixed established amount.

2. Ease of obtaining

There are also differences in the ease of obtaining a debit card and a credit card.

Debit cards are the easiest to obtain, since to have one you only need to have an account with money in it or the bank can open one for you.. Depending on the type of account we have with our bank, our checking account may consist of a passbook and a debit card or, directly, only have the debit card as a method to withdraw and use money.

In the case of credit cards this is a little 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 will be able to pay back the money they lend us. If the bank does not think we are solvent, it will not give us a credit card; if it does, it will determine the maximum limit of money it will lend us.

3. Commissions

Another interesting difference between both types of cards is the commissions paid for each of them. This depends on each bank and an annual fee is usually charged for each type of card. However, the fee that is usually the cheapest is for debit cards. As each bank is different, the commissions that we can charge for the cards is a very important aspect to consult before getting any type of card in any type of bank. before getting any type of card in any type of bank.

4. Withdrawing money at ATMs

There are also differences between these two types of cards when it comes to withdrawing money at ATMs.

As a general rule, if you use your debit card at an ATM of your own financial institution, you will not have to pay any kind of commission.. The debit card works in the same way as the traditional passbook, and there are even current accounts that only have cards to obtain cash at 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.These are usually quite high, reaching up to 20% per annum. The financial entity will charge us interest for advancing us 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 current account.

It is for this reason that it is never recommended to use your credit card to withdraw money from an ATM, even if it is an ATM of your own bank. It should only be done in case there is a force majeure reason and you do not have any balance in your account.

5. Discounts and insurance

A point in favor of credit cards is that, when making purchases, there are cards that offer discounts in some establishments, give us points associated with purchases or offer advantages depending on the monthly amount spent. In addition, credit cards usually have a series of free insurances, for example, to protect us in case we buy a defective object.Debit cards do not have this type of insurance nor do they offer discounts.

Summary

Both debit and credit cards are very practical in our daily lives. Credit cards are a good option in case you need financing for unforeseen events or high-cost purchases, but it is also necessary to understand that the money given to us by the bank will have to be paid back 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..

Debit cards, on the other hand, are just a quick way to pay with our own money without resorting to cash. Using these cards involves spending money from our own current account and, once it has run out, we will not be able to pay with the card until we have injected money back into our account. This has the disadvantage that, if we run short of money in a specific situation, we will not be able to pay, but it also has the advantage that we do not get into debt with the bank.

Bibliographical references:

• Tolentino-Morales, J. (2016). Crédito vs débito: qué tarjeta le conviene? Mexico. El Economista. Retrieved from: https://www.eleconomista.com.mx/finanzaspersonales/Credito-vs-debito-que-tarjeta-le-conviene-20160202-0159.html.
• Gil, S. (n. f.). Difference between debit and credit cards. Economipedia. https://economipedia.com/definiciones/diferencia-entre-tarjeta-de-credito-y-debito.html.