Credit and debit cards are a common way to shop for everything from groceries to clothes. But do you still find it confusing to differentiate between them? Let’s dive into the details.
Appearance-wise, both credit and debit cards have 16-digit card numbers, expiration dates, magnetic stripes, and EMV chips. However, they work quite differently. Debit cards allow you to make purchases using money saved in your bank account, while credit cards enable you to borrow money from the card issuer up to a pre-set max limit to make purchases or cash withdrawals.
Credit cards offer a line of credit that you can use for purchases, debt transfers, and/or cash advances. You agree to pay back the borrowed money with interest, as per the conditions set forth by the financial institution that issued the card. There are many kinds of credit cards available:
• Standard credit cards usually come with no annual fees and basic benefits.
• Premium credit cards come with additional benefits like concierge services, access to airport lounges, and special event access, but they have higher yearly fees.
• Rewards credit cards offer cash back, travel points, or other advantages based on customers’ spending patterns.
• Low introductory interest rate credit cards offer only debt transfers.
• Secured credit cards have a requirement for a down payment in cash that is kept as security by the issuer.
• Charge cards lack a defined spending cap but often prohibit carrying over unpaid balances from one month to the next.
On the other hand, when you use a debit card to make purchases, the money is taken straight out of your checking account, and you are not borrowing from a bank or card issuer. Debit cards offer the same convenience as credit cards, and when provided by significant payment processors like Visa or Mastercard, they offer customers with protections too.
There are two types of debit cards that don't require the user to have a bank account: electronic benefits transfer (EBT) cards issued by state and federal organizations, and prepaid debit cards that people without bank accounts can use to make electronic purchases up to the amount preloaded onto the card.
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