Today it is difficult to imagine a person without a bank card. These banking products are now used to pay for purchases, transfer funds, and perform other transactions. Most of us use both types of cards but often don’t fully understand the difference between credit and debit cards. In the meantime, some services only accept credit cards, and debit cards have some restrictions that you may encounter at the most unexpected moment. It’s time to understand the essence of credit and debit cards once and for all.
A debit card is a bank card that is used to get cash from ATMs, pay for services and goods, and transfer personal funds to other accounts. This card is tied to a bank account and allows you to manage funds within the limits of your account balance. In simple words, debit cards are made for your everyday expences.
A credit card is a bank card that allows you to manage funds provided by the bank within the credit limit under the loan agreement terms. You can use these funds if you need, but you’ll need to give them back.
The main function of a debit card is to replace paper money when making payments. A credit card allows the borrower to use bank funds as part of a loan agreement, which usually involves some commission.
In simple words, the main difference between these two types of cards is the source of funds. With a debit card, you only have access to your own funds that are in your bank account. If you are using a credit card, then you are using money that belongs to the bank. Can a credit card be used as a debit card? Yes, it can. You can top up your credit card and use only personal funds, without hitting the credit line.
As we wrote above, the credit card holder gets access to a certain amount of funds issued by the bank. If you use this money, you will need to return the funds in accordance with the terms of the loan agreement.
Many credit cards have a so-called grace period. This is the period during which you can use credit funds and pay off the debt without additional interest. If you have not repaid the loan by the end of this period, interest will be charged for the use of the loan. After that, you can either fully repay the entire debt or pay only the accrued interest (minimum payment). Also, credit cards may have special conditions for personal transfers, account maintenance fees, cash withdrawal fees, and other payments that are individual for different banks.
No interest is charged for using personal funds kept on a debit card. As a rule, debit cards are used to receive payments (social, payroll, money transfers from relatives, and so on).
A service such as an overdraft can also be enabled within a debit card. It is a credit that the owner of a debit card can use if the need arises. An overdraft differs from a regular credit line in that it is usually a small amount of funds. It is necessary to return the entire amount at once, and the overdraft interest is either absent at all or is minimal.
It all depends on your needs. Some people categorically do not want to use credit cards so as not to accidentally use the credit limit and then not pay interest. On the other hand, some services (for example, hotel reservations or car rentals) only accept credit cards in order to be able to withdraw payment, even if there are no personal funds of the user on the account.