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Debit cards vs. credit cards

Debit cards vs. credit cards

There are a lot of differences in the way credit cards and debit cards work, so it’s important to know which one to choose depending on your circumstances. Read our guide to understand the pros and cons of each.

Anelda Knoesen
From the Money team
minute read
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Posted 10 JANUARY 2020

What is the difference between a debit card and a credit card?

The main difference between a debit card and credit card is that a debit card allows you to make a purchase using the money available in your bank account. A credit card allows you to borrow now and pay later, either all at once or in instalments.

Overall, credit cards can be good for making purchases as they offer some protection for consumers, while debit cards are better for cash withdrawals and don’t usually involve taking on debt.

What are the advantages of a debit card?

The advantages of a debit card can include:

  • Easier eligibility: almost everyone can have access to a bank account, allowing you to make payments and receive money. If you’re not eligible for a standard current account, you can apply for a basic account. However, with a credit card, your application will be accepted or declined based on your credit history.
  • Less risk of debt: debit cards make it more difficult to spend money that you don’t have, helping you avoid debt.
  • Cash withdrawals: many ATM machines will allow you to withdraw cash from your bank account using your debit card without any fees or interest. If you use a credit card to withdraw cash, you’ll usually be charged interest immediately and won’t benefit from any interest-free period.
  • Overdraft: if granted an overdraft by the bank, you can have access to credit for short-term borrowing or emergencies.

What are the advantages of a credit card?

The advantages of a credit card can include:

  • Spreading the costs of purchases: you can buy something today and pay for it over several months, making sure you’re paying the minimum payment each month.
  • Interest-free borrowing: many credit cards offer interest-free periods for balance transfers and purchases. So as long as you pay off your balance in full during the period, there won’t be any interest to pay.
  • Rewards: it’s worth checking if a credit card offers rewards – these can include loyalty bonuses, air miles or even money off your weekly food shopping.
  • Building your credit score: credit cards give you an opportunity to build up your credit score if you use them responsibly and keep up with your repayments.
  • Credit card purchase protection: under Section 75 of the Consumer Credit Act purchases between £100 and £30,000 made with a credit card are protected if something goes wrong – for example, if your purchase isn’t delivered or if the company goes bust. This is because the retailer and your credit card company both take a degree of responsibility for anything bought on the card.
  • Less risk: when you spend on a debit card the money comes out of your current account immediately. When you have a credit card, you’re spending the credit provider’s money and will have the chance to spot fraudulent activity on your statement. You can then flag it up to your provider before you make your payment.

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