The main difference between debit and credit cards is based on the fact that the former are always associated with the balance that the client has in the current account, while credit cards allow them to operate with money loaned by the financial institution.
When money is withdrawn from an ATM with a debit card or a payment is made with it, the amount of the operation is automatically discounted from the balance of the associated account. In fact, if there is not enough balance to carry out the operation, it will be denied.
Instead, when using the credit card, the bank is the one that is lending the money. We will have to return that money the following month or in various installments paying interest on it. In this case, the financial institution advances the money regardless of the balance in the account. For this reason, before granting a credit card, the bank studies the customer’s viability, making sure that it is solvent. Still, the credit card has a limit.
Payment methods of a credit card
Credit can be “repaid” in three ways:
- At the end of the month: Normally it takes place one day the following month. This day, known as the settlement day, is cited in the contract.
- By means of a percentage: Every month we will pay a percentage of the credit.
- Fixed fee: This modality is known as revolving. It consists of paying a fixed fixed amount.
Credit cards are defined as a financial instrument. They allow you to pay in installments and make purchases without having to pay the total payment. By contrast, debit cards are a means of payment in themselves: the amount is directly charged to the account of the owner and is deducted directly from the balance.
Differences in commissions and discounts on different cards
Another difference between both types of card resides in the commissions that are paid by each one of them. Depending on each bank, they usually charge an annual commission for each type of card, with the commission from debit cards usually being cheaper than in the case of credit cards. However, this data on commissions is interesting when choosing the bank where you want to contract the current account and cards.
There are also differences when you want to withdraw money at ATMs. If the debit card is used at an ATM of the financial institution itself, normally you will not have to pay any type of commission. On the other hand, if money is withdrawn with the credit card, the financial institution will charge interest when the balance of the card is paid; These depend on each type of card and each bank, but are usually quite high (around 20% per year). Therefore, and according to experts, “you should never use a credit card to withdraw money from an ATM, unless it is a force of greater cause and there is no balance in the account.”
When making purchases, there are credit cards that offer discounts in some establishments, which can always be interesting. Debit cards, on the other hand, do not usually have any type of discount associated with them.
Finally, if the debit card is used irresponsibly, the holder may run out of money in the account, but he cannot spend more than he has. However, misuse of credit cards can lead to severe debt.