debit card vs credit card
Debit Card Vs. Credit Card
Where consumer psychology is concerned, a debit card has won the vote of banking, economics and finance experts whereas the credit card has won the shoppers vote. Keep reading to know more...
The real difference between a debit card and credit card is imprinted within the names of the two cards. The debit card enables you to withdraw or 'debit' the amount from your bank accounts, to which the card is attached, whereas in case of a credit card, you 'credit' the money which means that you borrow the money from your credit card company.
The difference in theory implies, that while using a debit card you spend that is you have an expenditure which is directly deducted from your bank account, whereas, when you use a credit card, you spend, that is have an expenditure as well as have a liability of the spent amount plus the APR (Annual Percentage Liability). From the point of view of consumer economics both the cards and their programs are great, but if you compare, then the debit card is a better option.
A Comparison: Debit Card Vs. Credit Card
Technical Difference: The technical difference between the two is very, very simple.
- Debit Card: When you swipe a debit card, it acts exactly like a bank check or even direct cash. The amount gets transferred (deducted) from your bank account to the vendor from whom you have made a purchase. It can be attached to any account, a bank savings account or even a current account. The basic thing is that you are spending your own hard-earned money. The only difference is that you are paying through the card, instead of giving out a check or direct cash. It is not a prepaid card or a charge card, where the financial institutions levy massive fees for the transactions. Please note that some financial institutes have a policy of charging some sum of money to cover up processing charges on an annual basis, this fee is negligible.
- Credit Card: A credit card as the name suggests is a card where every card swipe means that the card users have borrowed money from the credit card company. Indeed in such a case, the company bears the expenditure on the behalf of the card users, and the total sum is repaid to the firm through a monthly bill. An APR (which is substantial) or an annual percentage rate is charged upon the total payments made through the card. Late fees, fines and membership fees levied on the card, and with effect owning and using a credit card has expenditures of its own.
- Debit Cards: This type of card, does not have an extra charge (conditions exist) or an APR. The user does not have to pay off any extra fee or charge to the card provider. The debit card can also be used to withdraw cash from an ATM, or from the vendor himself. Another very good provision that can be used by the debit card holders, is that they can overdraft from their account free of charge in many cases, till a certain amount, especially if the card is provided by a bank. Please note that there are certain fees and taxes, that are levied if the card is used for very high amounts. Some common debit cards include, Visa Debit, Visa Electron, Interac, Laser, Maestro, Solo, Switch, etc. The only possible disadvantage is that very, very addictive spending can prove to be dangerous, which can be the case with both the type of cards.
- Credit Cards: A certain resentment and negative feeling about credit cards has generated in Americans, in the post recession era. The high and floating APRs, late fees and fines are some of the drawbacks of a credit card. But again there are certain advantages also, like a high credit limit, increase in credit score, perks, etc. Some popular credit card providers include, American Express, VISA, MasterCard, CitiGroup etc.