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With digitisation making transactions convenient, consumers are usually more inclined to use plastic money such as credit or debit cards as opposed to cash transactions. While both the cards allow fulfilling immediate financing needs, there is a considerable difference between debit and credit cards.
Such differences can primarily be outlined in terms of working of both the cards. When a debit card is used for a transaction, the amount is debited directly from the bank account of the cardholder depending on the funds held in an account. On the contrary, credit card functions like an unsecured loan with a particular credit limit. Purchases made within the credit limit need to be paid back to the card issuer based on monthly bills generated, non-payment of which attracts interest.
Despite such additional charges, multiple benefits make credit cards a better option over debit cards.
Advantages of credit cards over debit cards
- Building a credit history
Credit cards allow users to use borrowed funds, thus affecting their credit history. If a credit card is used responsibly, i.e., one pays the bills within the due date and does not exhaust the credit limit, it helps build a favourable credit history. A reliable credit history, representing an individual’s repayment habits, helps in securing loans and advances or availing better terms for it. It is, however, not the case with debit cards as funds used are owned by the cardholder.
- Protection against fraud
Another credit card benefit over debit cards is that if it is stolen or fraudulently used, transactions or purchases made on such a card can be rescinded or reversed. Credit cards are therefore helpful to reduce financial liabilities. Also, in case of unresolved instances, the liability remains with the card issuer. It is primarily because funds fraudulently used belong to the card issuer. It is one of the major reasons why credit cards are better than debit cards.
- Short-term financing
Another significant difference between debit and credit cards is that the latter provides short-term financing to be utilised within a billing cycle. Bill payment on such usage should be made within the due date to avoid incurring interest. The credit card’s limit can be further converted into a personal loan, thereby providing immediate liquidity to a cardholder. However, this facility of short-term financing is not available in case of debit cards.
- Ease in travel
Credit cards are particularly useful while travelling. If you are swiping your debit card for every transaction, the amount is immediately debited from the bank account. It may put undue pressure on the vacation budget. However, in case of credit cards, one gets a breather till the payment due date provided after a billing cycle ends. The bills can thus be settled after concluding the vacation, and before payment due date. The need to not pay the required funds immediately is one of the credit card benefits for travellers.
- Additional benefits
Credit card benefits may also include additional in-hand security features, which enable the credit cardholder to control its usage limit as well as keep track of fraudulent transactions, in case they occur.
As for credit cards like the Bajaj Finserv RBL Bank SuperCard, it comes loaded with similar features that not only help meet one’s cash needs but also retain the provision of availing an emergency loan.
The pointers thus establish the differences between debit and credit cards. Before applying for a credit card, individuals should determine their spending requirements as well as repayment capacity. It is also advisable to not exhaust the credit limit as it may reflect poorly on the credit score of the cardholder.
