The debit card is the one in which the amount gets deducted from the bank account by swiping the card on the point of sale machine to pay to the vendor. While the credit card is the one in which the amount gets added & at the end, the customer has to pay the amount to the bank. The merchant deduction rate is 2% of the transaction value for the transactions been done. The customer does not have to bear the cost of MDR, while the merchant has to pay it to the bank. The Indian economy is mostly the cash economy, and thus the usage of cash is higher than card swiping. But the digital transactions have taken a rapid pace, and thus the number of card transactions is growing very rapidly. The banks encourage making transactions through credit/debit cards as they gain commission on the transactions. Banks provide reward points to the customer for using the debit card/credit card. The reward points can be redeemed for future transaction redemption, or else the bank sometimes provides vouchers about redeeming the card points to buy goods in the market through vouchers.
Still, these days due to attractive offers on credit cards, the usage of credit cards is growing very rapidly. The Debit cardholders are higher in number as when the bank account is opened; the user gets a debit card in hand to swipe it or else withdraw the cash from the ATM. Various rewards are being provided for the sale of debit cards. The banks sometimes may or may not charge annual fees on the card depending upon the usage of the card of the borrower. The credit cards are allotted only to those customers whose CIBIL score is good or excellent. Bank does not prefer the customers who have a poor or average score as with such kind of customers, the chances of default are more. The bank provides a due date every month for the repayment of credit card bills, beyond which the bank charges an interest penalty to the borrower if the bill payment is delayed. The rare delay in payment of credit card bills can sometimes be considered as the borrower may fail to repay the credit card bill due to unavoidable circumstances. Still, frequent delays may affect the CIBIL score of the customer.
Credit vs. Debit card which suits better
The credit card is more suitable for the people who make online transactions or swipe the machine at the outlet. The people who use more cash while purchasing goods are more suited for the debit cards through debit cards also have the swiping feature, but the people transacting in cash are more likely to use the debit card. Though both the type of cards have same features of online payment and offline payment the mere difference is that the bills need to be paid in a later stage in case of credit cards while in case of Debi card the money gets debited from the bank account. Through credit cards, if money is withdrawn, an interest penalty is being charged, while in the case of debit cards, an interest penalty is not charged.
Benefits of Credit Cards –
- Bill payment can be made in the next billing cycle after purchasing the goods in a particular month
- Credit cards have more attractive offers for redemption as compared to debit cards
- Credit cards do not auto-debit money from the bank, and thus shopping through online or offline mode can be done even while not having a sufficient bank balance
- The limit for spending is considerably high depending on the need of a customer and the credit score of the customer
Disadvantages of Credit Cards –
- Interest penalty is being charged in case of the cash withdrawal through a credit card
- The penalty charged is heavy in default or delay of the bill payments of a credit card. Also, due to non-payment, the penalty amount may get accumulated and increase until the time bill is not paid
- There are very few merchants online who do not accept credit cards; they accept debit cards only
- If the transaction amount exceeds, the limit of usage interest is being charged on the extra amount
Thus we can conclude that the people who tend to use online mode of payment or else card swiping at the merchant outlet should make more use of credit cards. While the customers who tend to use the cash more them the debit card is more suitable. It is more advisable to use a credit card as it provides a higher duration to pay the bills rather than debiting directly from the bank account.