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 accounts allow trading with money provided by the financial institution.
When money is taken from an ATM with a debit card or payment is made with it, the amount of the transaction is automatically deducted from the balance of the associated account. In fact, if there is not enough balance to perform the operation, it will be denied.
Instead, when the credit card is used , the bank is the one who is lending the money. That money we will have to return it the following month or in several installments paying an interest for 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 viability of the customer, making sure that it is solvent . Still, the credit card has a limit.
Payment methods for a credit card
The credit can be “returned” in three ways:
- At the end of the month: Normally it is done one day of the following month. This day, known as settlement day, is cited in the contract.
- Through a percentage: Every month we will pay a percentage of the credit.
- Fixed fee: This modality is known as revolving. It consists of paying an established fixed figure.
Credit cards are defined as a financial instrument. They allow to pay in installments and make purchases without having to disburse the total payment. On the contrary, debit accounts are a means of payment in itself: the amount is charged directly to the account of the holder and deducted directly from the balance.
Differences in commissions and discounts on the different cards
Another difference between both types of card lies in the commissions that are paid for each of them. Depending on each bank, they usually charge an annual commission for each type of card, normally the commission of debit cards is cheaper than in the case of credit cards. However, this data of the commissions is interesting when choosing the bank where you want to hire the current account and cards
There are also differences when you want to get money at ATMs. If the debit card is used at an ATM of the financial institution itself, normally no commission will have to be paid. On the other hand, if money is taken out with the credit card, the financial institution will charge interest when the card balance 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 the credit card to withdraw money from an ATM, unless it is a force of major 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 discount associated with them.
Finally, if the debit card is used irresponsibly, the cardholder may run out of money in the account, but cannot spend more than he has. However, misuse of credit cards can lead to severe indebtedness.