Good Afternoon to All,
Can anybody please explain briefly about the credit card and Debit card, how both are useful, And also advantages and disadvantage of credit card and Debit card........
Awaiting for your kind replies.....
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Debit card and Credit Card
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How debit cards work
Debit cards are linked directly to your bank account. You can use them to buy goods or withdraw cash and the amount is taken from your account right away.
You can also use debit cards to get 'cashback' from shops when you buy goods and also ask for money back from the cashier, although not all shops offer this. The total amount is deducted from your account right away.
When using a cash machine or paying for goods with a debit card you'll need to enter your PIN (personal identity number). When buying goods you usually enter it into an electronic hand held device, but in some cases you may have to sign.
Most bank accounts offer debit cards. Most debit cards double up as 'cheque guarantee cards', guaranteeing that your cheque will be honoured by your bank up to a stated amount.
What happens if there's not enough money in your account?
This will depend on the type of debit card you have:
- if you have a ‘Solo’ or ‘Electron’ debit card the balance in your account is checked before each transaction – if there’s not enough money you won’t be able pay or withdraw cash with the debit card without prior agreement
- if you have ‘Switch’, ‘Visa’ or ‘Delta’ card your account balance won’t necessarily be checked and the payment may still go through
If you go overdrawn the charges you’ll pay will depend on whether or not you have an authorised overdraft arrangement with your bank. If you do, you’ll pay the agreed amount of interest at the end of each month. This is usually much lower than interest charged on credit cards.
If you don’t have an overdraft agreement, or you exceed the agreed limit, your bank may allow the payment to go through but you’ll usually pay much higher fees than if you had an agreed overdraft.
Using a debt card over the phone or internet
Debit cards can be used to make payments by phone or over the internet. In this case you'll need to provide certain details that are printed on your card. Find out more and view an example debit card on the Financial Services Authority (FSA) website.
How credit cards work
A credit card is a form of borrowing. Firms lending money to customers must be licensed by the Office of Fair Trading (OFT) under The Consumer Credit Act 1974. The Act requires certain credit and hire agreements to be set out in a particular way and to contain relevant information for the person borrowing.
Credit cards allow you to 'buy goods now and pay later' - called 'buying on credit'. They aren't linked to your bank account. Like debit cards, they can be used to buy goods in shops over the telephone and internet, with the same details being required. You can also get a 'cash advance' by drawing money at bank cash machines.
Your bank may offer you a credit card, or you can apply for one to any institution offering one. The credit card provider will normally run checks to see if you've had problems repaying debts before offering you one (called a 'credit check').
The risks of using a credit card
Think carefully before using a credit card. If you don't repay your bill in full by the date shown you're charged interest on the whole amount of the bill for that month. The rates of interest - indicated by the APR (annual percentage rate) - can be very high indeed.
If you take cash out with a credit card you're charged daily interest from the moment you take out the cash until the credit card bill is paid in full. This is an expensive way of borrowing money.
Some credit cards also charge you an annual fee simply for having the card.
If you can't afford to repay your credit card bill you could quickly fall into debt.
Good Information ...............................
It’s easy to get confused between credit cards and debit cards.
They are practically used the same way, look alike and seem to have similar benefits.
Advantages of credit card
The biggest advantage of a credit card is reward points.
Typically the higher up the card ladder you go, the higher benefit you can accrue in the form of reward points and privileges. You are also able to use offers given by various merchants only for credit card holders of a particular bank.
When traveling abroad, a lot of hotels and rental car companies need a credit card on file to make a reservation. The same goes for software trials and PayPal transactions which don’t accept debit cards at all.
Credit cards also come in handy in emergencies to withdraw money or make essential purchases. The charges and interest rates though are substantial. An emergency fund and budgeting are better options to deal with such situations.
Advantages of debit card
With debit cards, you don’t run the risk of spending beyond your means.
You don’t get carried away as you’re spending capacity is limited to the amount available in your bank account. Since you’re using your own money, there are no bills to be paid or payment due dates that need to be tracked.
Purchases are made with the same convenience as credit cards without the hassle of borrowing money, interest rates or charges. At the end of the month, your bank sends you a statement that you can use to track your expenses and manage your money.
Debit cards also double up as ATM cards that can be used to withdraw money from your bank account.
Source: LittlePixi
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