Do you know the differences between a line of credit, debit card and credit card?
Ferratum today gives you the answers
Credit or debit card?
There are many occasions in which we have asked this question, and it is very easy to confuse both products. What do we usually pay in establishments? What card do we use to get money at an ATM?
The differences between the two are remarkable but the lack of financial information leads, in many cases, to confusion. This confusion is also due, in part, to people using the two cards for the same purposes.
It is generally recommended to use credit cards for the most disciplined in the management of finances, while debit cards are more focused on consumption.
It is important to know the similarities and differences to know when to use one and then another. It is essential to know the characteristics of each product, then decide which one best suits our desires and needs.
Ferratum brings you the main features of both cards:
These cards are the most used, although we often call “credit card” any card with which we make a payment, the usual bank cards are debit cards.
These cards are used as a means of payment and are linked to a checking account. Every time we buy a product, either in a physical store or online, it is immediately charged to our bank account. If we do not have a balance in our account, the card would give an error, that is, the transaction would be rejected and our purchase could not be made.
The debit card is not intended as a means of financing but as a form of payment, is a mere instrument with which we access our account, or put another way, is a piece of plastic that transfers money from our checking account to the bank accounts of the stores where we make our purchases.
These cards allow us to make transfers and get the money we need at any ATM. In short, they are a means of payment that allows us to have the capital that we have saved in our bank account.
Banking entities do not usually charge issuance and maintenance expenses for their debit cards and cash withdrawals fees at ATMs are not very high.
General characteristics of debit cards
- With debit cards, it is possible to withdraw cash at ATMs and at bank branches.
- These cards are valid to make purchases in stores. When carrying out this operation there is an instantaneous charge to our current account for the amount spent.
- It is necessary to have sufficient funds in our current account at the time we make a payment or withdraw money from the ATM (there are exceptions because some debit cards allow you to incur short-term overdrafts) The expenses will be deducted from our checking account. And this is where we find the main difference between debit and credit cards.
- For regular purchases (supermarket, fashion, perfumery … etc) debit cards are the best option because we do not have to pay interest of any kind since all the capital is extracted from the savings deposited in our bank account.
- It is essential to have a current account in the bank that has provided us with the card.
- Debit cards are very useful because they help us keep track of our expenses. At any time we can check our movements and the available balance of our card. This is important because it facilitates the control of debts. If we go to pay for a product and we do not have enough money, the purchase does not take place.
- The customer agrees to a daily spending limit with the bank, for security reasons. In this way, even if sufficient funds are available, the operation cannot be carried out if this limit is exceeded.
- Debit cards have less insurance associated with the card.
- Debit card commissions are cheaper than credit cards. The amount varies depending on the bank.
- Some banks do not impose any type of commission on debit cards.
These cards are not only a form of payment, but they are also a means of financing and perhaps this is why their mechanism of operation is much more complex than that of debit cards.
When making purchases in physical stores or online the process changes. Credit cards, unlike debit cards, allow you to make purchases without having the necessary amount in your checking account. Payments are deferred for a specific time (approximately one month). Once the estimated date has expired, the client will have the duty to settle the debt. In most cases the associated account has funded and the debt is charged directly but in the case that it does not have funds, the interest on the credit card will be activated, which can range between 12 and 20%.
Another notable difference is the commissions. Credit cards have quite higher commissions than those in debit cards.
The withdrawal of money in ATMs already means a high cost (approximately 20%). This is why it is important to know the characteristics of both cards to know which best suits our needs. In addition, these cards also have an annual emission and maintenance cost. But, undoubtedly, the positive point of these cards is the margin of payment, because if you need to make an urgent purchase and you do not have enough money with credit cards you can make the purchase.
General characteristics of credit cards
- We must think of credit cards as a means of financing and not just as a form of payment.
- We can make purchases without spending money instantly and, later, we can return it in different terms.
- It is not necessary to have funds in the current account to make purchases (as long as we do not exceed the pre-established limit).
- To obtain a credit card it is necessary to present a proof of income or the direct debit of a payroll or pension. Well, it is necessary for the bank to know that we will be able to face possible debts.
- The client must return the money used plus costs and interest.
- The established credit limit will appear on the card contract although it is possible to change this amount over time.
- Payment of the debt must be made at the beginning of the month (or the days stipulated in the contract, which will vary according to the bank)
- A deferment of payment can be made if the client can not cope with the debt but these postponements have an increase in interest. In addition, if the customer pays their debts on time, they may have future discounts and points that will be associated with purchases with a credit card.
- These cards have insurance, unlike debit cards.
- The main advantage is that in case of emergency or improvisation you can use this card without having money in the account
Now that we have already known the characteristics and differences of credit and debit cards, we are going to talk about another different service: credit lines.
This concept is also common that leads to confusion, many relate it to credit cards but both products present important differences.
Perhaps this service is aimed at a different public because the lines of credit are more used by companies than by individuals.
The line of credit is the authorization that a bank or financial institution grants to a company to have financing and thus be able to face payments using cash. A limit will be established in amount but this, normally, is much higher than that of credit cards. The deadlines are also more flexible.
The entities evaluate the income and expenses of the companies to jointly agree on a quantity limit and manage the payment terms.
The lines of credit are very positive in that the companies, thanks to them, can face urgent punctual payments.
They are widely used to pay payroll, suppliers, materials … etc.
It is very common for companies to have months of lower productivity and it is at this time when the line of credit is a great help.
Many entities also have credit lines available for individuals. Following the same conditions of evaluation of income for the subsequent agreement of terms and amounts.
In the case of the line of credit, the amount granted to the company, autonomous, private … etc., Will be available so that the amount needed may be withdrawn as many times as necessary, provided that the limit is not exceeded. If finally, the company did not need the money from its line of credit, it would only pay the established costs of issuance, without interest or added capital.
Have all your doubts been clarified? Do you already know how to differentiate between a credit card and a debit card? Have you found the operation of the credit line interesting?
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