You might take out the plastic card with great flourish and present it at the cash counter only to be told thatthey do not accept debit cards. You might contest this and say that the card has the Visa or the Mastercard logo.With people becoming well versed with the once feared and mindboggling terms like Forex, Bullion and CFD Broker | XGLOBAL Markets there stillsadly are few peoplewho are totally clueless about the plastic card that rules the world today. Avast majorityof people do not know the difference between a debit card and a credit card. They areoften flummoxed and confused and in certain cases even enraged when faced with a situation similar to the above-mentionedscenario.Here we attempt to explain the difference in simple terms so that the confusion is cleared once and for all.
1.The way it works:Debit cards and credit cards are similar in appearance:
they are both plastic cards of the same shape, size,and long numbers. They both need to be signed on the back. They both can be swiped at the counter. And in many cases,the Visa and Mastercard logo isdisplayed on them. But there ends the similarity.
A credit card uses money that is not yours make purchases. You basically borrow it from the issuing bank and have to repay it with interest within a stipulated period. The longer you take to repay the loan the more the interest accumulates.
The debit card, on the other hand,uses your own hard-earnedmoney from your savings account. Every time you make a purchase your account is debited. In this case,there is no interest and you don’t have to pay anything back (itwould be silly if you pay yourself back).
2.What about the Visa and Mastercard logo:
It is but natural to get confused to see the same logo on your debit and credit card. Mastercard and Visa are not banks, they don’t lend you money or charge you interest; in very rudimentary terms they can be called the link between the banks involved in any transaction. It is not necessary that the store you buy goods has an account in the same bank as you.These two networkscommunicatebetweenthetwo banksabout a transaction and tell which bank has to be credited and which one has to be debitedand if a transaction is approved.
3.Debitcard as Creditcard:
The confusion worsens when you find out that your debit card can double up as a credit card in certain transactions. How do you differentiate where it is used as a credit card and where a debit card?
Wherever you are asked to input a PIN to authenticate a transaction it is being used as debit card
Wherever you are required to sign to authenticate a transaction it is being used as a credit card.Irrespective of how you use it, your savings bank accountwill be deducted. When you swipe your card as a debit card your account gets debited instantly and you are protected by the Electronic Fund Transfer Act. According to this law, even if your card has been misused by someone other than you are liable until you report the fraud. Untilsuch time you have to pay the charges. If you report within 60 days then you are not liable but after that time period,you are responsible for all overdraft and penalties even. Since debit cards come with a PIN your liability is more as it is not easy to acquire a PIN.When you pay as a credit card the merchant has to pay transaction fees to the bank and that in turn,he will chargeyou. The second disadvantage is that adebit card that has been used as a credit card is not protected under Fair Credit Billing Act that protects credit cards. But there is one advantage you have when you use a debit card as a credit card is that the transaction takes a day or two to reflect in your account.
4.Credit cards are more expensive:
When you use a credit card your merchant ends up payingmore processing fees than he would if you pay using a debit card
.Hopefully, you are wiser now and know when to use a debit card and when a credit card.