Credit cards: What are the advantages and how are they different from debit cards?

They say what is in a name! Well, ‘everything’ when it comes to a credit card. It is a card which appears quite similar to a debit card but the meaning changes radically when the prefix is 'credit' instead of 'debit'.

A credit card typically offers a slew of benefits not offered by debit cards. First, credit cards offer an interest-free period during which no interest is charged to the user. Second, one can use a credit card for a number of purposes, including cash withdrawal at an ATM, making payment at a merchant or for online purchases, getting access to an airport lounge and making payment for fuel, among others.

Since banks encourage their customers to use credit cards as often as possible, they tend to sweeten the deal by offering a range of reward points, cashbacks and discounts, thus making these items affordable for the credit card users.

So, these are some of the key features of credit cards.

Credit cards are useful in the following ways:

1. Deferred payment: Since credit cards give a provision to make payment during a time period that could be as long as 45 days, card users practically get to do a deferred payment for the purchases made during the month. Notably, this time period before the deadline is interest-free.

2. Credit score: A credit score enables users to strengthen their credit score by a) making payments on or before the deadline, b) keeping the credit utilisation ratio lower, and c) making full payments instead of opting for the minimum due. Over a period of time, you can become eligible for raising a loan from the bank.

3. Convenience and benefits: Almost all credit cards offer a range of benefits such as cashbacks, rewards, fuel surcharge waiver and access to airport lounges, among others. These benefits are quite enticing and come free of cost. They are offered as an incentive to users so that they can make use of credit cards as often as possible.

4. Consolidation of all expenses: Another advantage of a credit card is to consolidate all small and large expenses into one monthly bill that can be paid before the due date in alignment with the credit card bill cycle.

5. In case of frauds: When you face any fraudulent transaction, you can immediately raise an objection with the bank before your bank account is debited. This is another advantage because you don't lose your money immediately as it happens in case of debit card. You get some time period in hand during which you can coordinate with the bank to counter the impact of fraudulent transactions.

Here we give a lowdown on some of the key differences between a debit and a credit card.

Differences between debit and credit cards:

1. Cash outgo: In a debit card, the cash outgo happens immediately. The moment you spend the money, your account is debited immediately. On the other hand, in a credit card, the cash does not leave your bank immediately. The money that is transferred to the merchant is not debited from your bank, but it is given as a form of 'credit'.

So, in case of fraudulent transaction, you have an option of raising an objection before the bank decides to deduct your bank account by the same amount.

2. Interest-free period: The bank offers nearly one-and-a-half month of interest-free period during which card user does not incur any liability. And before the expiry of this period, if the credit user makes the payment, the liability is same as the amount spent by using the credit card. Nothing of this sort happens when you use a debit card. You spend the money, account is debited there and then.

3. Reward points and cashbacks: Almost every credit card offers reward points and cashbacks for using the card. No debit card provider gives these features to the card users.

4. Access to airport lounges: Most credit cards enable their users to access airport lounge services at least once in a quarter. The premium credit cards provide unlimited access to airport lounge as well.

5. Merchant discounts, tickets and free passes: A number of credit cards offer merchant discounts, discounts on tickets to cinemas, and free passes to attend events to the card users. Although certain discounts are offered to debit card users, the range of offers and options given to credit card users is typically wider for credit card users vis-a-vis debit card holders.