Debit Card vs. Credit Card: Key Differences 1. Source of Funds Debit Card: When you use a debit card, the money is immediately deducted from your linked bank account. You can only spend the amount you have in your account or within an overdraft limit if applicable. It’s like using your own money. Credit Card: When you use a credit card, you are borrowing money from the issuing bank up to a pre-approved limit. You pay the bank later, either in full or in installments, sometimes with interest. 2. Ownership and Liability Debit Card: The cardholder owns the money; it’s directly their account. If there is unauthorized use, banks usually investigate, and the liability may be limited or transferred based on RBI’s “fraud liability” guidelines. Credit Card: The cardholder owes the bank money. Liability for fraud or misuse is subject to different rules, often defined under the Indian Contract Act and RBI guidelines on electronic payments and customer protection. The cardholder is liable for unauthorized transactions unless reported promptly. 3. Credit Facility Debit Card: No credit facility. Spending is limited to the available balance. Credit Card: Offers a revolving credit facility, allowing the user to borrow up to a certain limit and repay later. 4. Interest and Charges Debit Card: No interest charges since it’s your own money. Banks may charge fees for specific services like ATM withdrawals beyond a limit. Credit Card: Interest is charged on unpaid balances after the due date. Additionally, there may be annual fees, late payment fees, and other service charges as per the terms and conditions. 5. Regulatory Framework Debit Card: Governed by the RBI’s guidelines on prepaid instruments and electronic payments under the Payment and Settlement Systems Act, 2007, along with the Banking Regulation Act. Customer protection is outlined under RBI’s Master Directions on digital payments. Credit Card: Governed by RBI regulations, including the Credit Information Companies (Regulation) Act, 2005 (related to credit reporting), and the Indian Contract Act for credit agreements. Also, RBI Master Directions set norms for fair practices in credit card issuance and usage. 6. Impact on Credit Score Debit Card: Does not impact your credit score as it does not involve borrowing. Credit Card: Usage affects your credit score, maintained by credit bureaus under the Credit Information Companies (Regulation) Act. Timely payments improve the score; defaults harm it. 7. Purpose and Usage Debit Card: Used mainly for day-to-day transactions and direct payments, including ATM withdrawals, online shopping, and POS payments. It encourages spending within means. Credit Card: Often used for bigger purchases, emergencies, rewards, and building credit history. Also provides benefits like cashback, reward points, and offers, which are governed by specific agreements between cardholders and banks. Summary: A debit card lets you spend money you already have in your bank account, with immediate deduction. It’s safe, limits overspending, and comes under RBI’s digital payment protections. A credit card allows you to borrow money from a bank up to a limit, repay later with possible interest. It’s regulated by RBI’s credit norms and affects your credit rating. Credit cards carry higher risks and benefits.