Difference between credit cards and debit cards.

Surely in your wallet there is one or several debit and credit cards. Its use is already very normalized among the population. If at the beginning of 2000 there were almost forty-six million of credit and debit cards in circulation only in Spain, in the first quarter of 2018 the figure rose to almost eighty million cards (Source: Spanish card networks. Bank of Spain). And that although it has long been predicted that the bills and coins in our pockets had the days counted, but it seems that for that we will still have to wait for something more. But are you sure you know what the differences are between them?

The main differences between credit and debit cards

Credit and debit cards are all made of plastic, all of the same size, all bear printed name of the cardholder and can be used for payment and ATM withdrawals. However, the fact is that each, debit and credit cards, represent different financial products.

The debit card is a method of payment in itself. Credit cards allows its holder financing purchases and defer payments, accepting certain conditions on terms and interests. But we will detail a little more the characteristics of each type.

Debit cards: day-to-day payments

The use of debit cards is widespread to make all kinds of payments, even very small amounts. Its number among the population grows with high speed becoming a usual financial tool of those who prefer to avoid the “hassles” of carrying cash.

The debit card can be requested in any local office of your bank and normally it is linked to a current bank account. Two main requirements to obtain a debit card is to be over 18 years old (except special products) and be a tax resident of Spain.

However, in order to avoid what is called “tax exclusion” at the end of 2017, the Spanish government assumed the community directive that aims to facilitate access to the financial system for all citizens. From that moment the banks are obliged (via Decree Law) to provide a current account and a debit card to any user who requests it, even if it is to perform basic operations.

Debit Card characteristics

Direct payment method on account

Every payment you make with your debit card, whether in a store, on the Internet, or cash withdrawal at ATM, is directly deducted from your current or savings account and you will see it immediately reflected in your balance. With a debit card you will not be able to spend more money than what you currently have available. 

Maintenance fees

Debit card maintenance fees are much lower than of credit cards. There are even banks that offer it totally free of any maintenance fees.

Wide acceptance

Today almost all comercial retailers give its client an option of paying with debit card. Some of them establish a minimum amount to be paid, usually 10 EUR, in order to charge it on your card. Its use in both Spain and the worldwide is very normalized. When traveling and withdrawing money abroad in ATM machines, make sure you are not charged twice the commissions. 

Validity

Debit card usually have a multi-year term validity, depending on the conditions set by the bank. Usually, before the expiration date of the card the issuing entity automatically sends a cardholder a new debit card.

Credit cards: buy today, pay later

If you do not have enough funds available on your bank account at the moment you need to make a purchase, or you do have them but just do not want to pay total amount and prefer make parcial payments, then you need a credit card for that.  

The credit card is issued by your bank or financial institution, upon request of the cardholder. It is common for the bank to ask for certain requirements, which may vary according to the entity but always have the same purpose: to measure the risk of your profile as a customer. After all, what they are going to do is open a line of credit and they will want to set limits depending on risk.

Credit Card characteristics

Payment method: deferred

The most interesting and advantageous characteristics of the credit card is that it allows you to finance the purchases, that is, divide the payments into installments without spending all the money you have on your account.

At the moment of purchase, the bank advances the amount of money needed to pay and you must establish with your entity the way you will pay it back. Normally, the holders of credit cards are offered several options to choose:

• Pay everything at the end of the month: Simply indicate which day you want to be charged the due amount, within the month following the purchase. In this case no interest will be applied to you. 
• Defer payments: You have to establish with your entity how much you want to pay each month. You must be aware of the interests, which will be specified in your credit card contract.

Maintenance fees

Generally speaking, maintenance fees of a credit card are higher than those of a debit card. Cash withdrawals at ATM have commissions that you should know in advance by consulting with your entity.

On the other hand, spend some time knowing what other fees may be applied to your credit card operations. Depending on the type of credit card you have, there are fees for issuance, renewal, maintenance, overdrafts, early cancellation of payments, for transferring funds from one card to another. Knowing your contract conditions is the only way to avoid any unnecessary expenses.

Use it with common sense

The good use of the credit card is based on controlling the expenses we make with it and not losing sight of the interests that it will generate. This product can be very useful if, like everything else, it is used when necessary and without excesses.

Define your needs

The same bank can have several types of credit card with different conditions. There are those with a higher credit limit and others with more flexibility to defer payments. The more benefits and guarantees you get, the higher commissions you might be asked to pay. Therefore, be realistic with your needs and do not go beyond what will really be useful.

Additional benefits

Having a credit card can bring its holder some additional benefits, such as insurance or loyalty programs for points. Don't forget to obtain the information about additional features your card can have. 

We really hope that with these indications you will be able to distinguish perfectly when you should use debit or credit card. However, we are happy to answer any questions that you might have.