Storyyogi Money Matters # 4 : Difference between credit card and debit card

Hi!! The other day I was trying to read and understand the difference between rabbits and hares. They look almost similar. Will really have to do a research to find out the difference. Just then saw dad rushing to the bank for some urgent work. He was desperately searching for something. I asked him if I could help him. He said he was searching for his credit card while he was already holding a card in hand . I pointed that to him and asked him was it the one ? He laughed and said that it was not a credit card but his debit card. Finally, after a hunt of almost 10 minutes, he found the card and showed me the same. I was surprised that the credit card too was just like the debit card. Just like understanding the analogy of rabbit and hare, I was trying to understand the difference between credit card and debit card.

I surely wanted to know and decided I will call up my beloved and “all-knowing” friend – Mr. Nosy Mice. I hurriedly called him up and asked if he was home and was all charged to meet him. I reached his home in a while and settled myself to know on this new topic of money matter.

[balloon-r]Hello Mr. Mice, it’s been a looooong time we met. Hope you are doing fine.[/balloon-r]

[balloon-l]Of-course I am fine and glad that we met. By now I am quite sure that you are adept with money handling matters and are equally responsible for each penny spent or earned.[/balloon-l]

[balloon-r]I just happened to see my dad holding two cards in his hand and he said that one of them is a debit card and the other one is a credit card. Can you help me understand what is the difference between both the cards?[/balloon-r]

[balloon-l]Yes, why not? Let me explain it to you. Both the cards look almost similar but there is a difference between the two. But first, we will talk about the similarities between the cards.
• Both the cards are issued by financial institutions like for e.g., the banks.
• Both are plastic cards with chip-based technology. Also, both the cards have the issuing financial institution’s name, the card holder’s name for e.g., your name embossed on it.
• Both the cards come in various colors and designs based on the customer preference.[/balloon-l]

[balloon-r]Wow!! That’s interesting! Then how come one can distinguish between the two? These similarities are so misleading.[/balloon-r]

[balloon-l]Not really my friend. Here’s the difference:
• The first difference is that as the name suggests “credit card”, it means that the customer enjoys credit facility from the financial institutions. In this the customer makes use of the banks money first and then repays the amount back to the bank with or without interest.
• In debit card, the customer utilises his own money which is deposited with the financial institution using his debit card. While using this card, the holder is paying for all expenses using his own money from his own account. Here, there is no credit facility provided to the holder.

[balloon-r]So, to summarize while using credit card you are using banks money first and then paying it later and while using debit card you are using your own money deposited with the bank.[/balloon-r]

[balloon-l]Yes, that’s right! Now furthermore there are some rules and regulations if you are using a credit card.
• The card holder must pay interest on the amount utilized from the credit card, if he fails to pay the money within the allotted time period. It’s just like in school, if you fail to complete your assignments, you are asked to get the signatures of your parents, that is like a penalty imposed for your mistake. Similarly, here the holder must pay interest as a penalty if he fails to pay the bill amount on time.
• This penalty is not applicable for debit card as here, there is no interest charged as the holder is paying using money from his own account.[/balloon-l]

[balloon-r]How does the card work when it is used?[/balloon-r]

[balloon-l]It’s very simple. The credit card does not get linked to your bank account. It is independent to any account and is issued purely based on your credit score. Whereas, the debit card is always linked to the bank account that you hold with the financial institution.[/balloon-l]

[balloon-r]Superb!! Now I am getting a grip on the understanding of the difference of the cards. What about the safety of the cards? I am sure they are some safety measures that we must follow while we use these cards.[/balloon-r]

[balloon-l]Yes of-course!! All security and safety measures need to be followed while using the card. Like, while using debit card we must ensure that we keep the PIN number a secret, look around before entering the same at any kiosk. Even for credit card, the PIN number forms a part of the verification process hence it is important that the holder exercises and keeps these security measures in mind while operating or possessing the card.[/balloon-l]

[balloon-r]Great!! Now I think I am very aware of the differences between the two cards. Thanks, Nosy for making it so simple to understand the difference so easily. Will get back home now. See you soon!![/balloon-r]

[balloon-l]You are most welcome my friend. See you Soon!!Take care.[/balloon-l]

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