Knowing clearly what is the difference between credit and debit cards will free you from many inconveniences. So you can avoid penalties by your bank and the generation of unexpected debts.
A credit card looks very similar to a debit card and both are instruments that allow you to disburse. But there the similarities end because, in fact, they are two very different payment instruments.
In the next lines, you can see the main differences between credit and debit cards.
According to the payment method
When you cancel with your debit card, the amount is debited from the bank account you have associated. It means that if you went to the bank, you would withdraw cash from your account and then, with it, cancel the purchase. The maximum amount of the acquisition with this instrument is given by the number of funds available in your account.
On the other hand, if you use a credit card as a payment instrument, what happens is different. The bank instantly grants you a loan so that you acquire the good or service of your interest. You can see it as the bank that pays the seller, using a credit she gives you. This under the commitment that credit said solvent plus interest rates, within a certain period of time.
Then, when you cancel with a debit card you don’t generate debts, but you consume the funds from your bank accounts. The opposite is true with the credit card: you generate a debt but keep those funds intact. This is perhaps the main difference between credit and debit cards.
According to the possibility of financing
This difference is derived from the above, only with the credit card is it possible to finance purchases. That is when you buy with a debit card you don’t get any financing since you use your own money.
Understanding this difference is important if you have in your plans to request some type of financing in the future. If you give proper use to your credit cards, canceling on time, you will be forming a good credit history. In contrast, the use of the debit card does not forge such a history.
According to the costs of use
Every credit card generates usage costs, in the form of interest payments or commissions for cash withdrawal. And even, with some of them, up to annual maintenance or renewal fees. All this means that this payment instrument should be handled with extreme care, avoiding falling into unproductive indebtedness.
On the other hand, a debit card will not generate high usage costs, since it will not produce interest. You may have to pay commissions if you withdraw cash, in case you use a bank other than yours. But these are generally extremely low.