We tend to incorrectly use the term “credit card” to refer to any type of card. Although both have many things in common (such as the expiration date, the card number or providers such as Visa or Mastercard), they are actually very different. Below we explain the differences so that you know which option best suits your needs.
What are the differences between credit card and debit card?
The main difference between a credit card and a debit card is in the form of payment : while debit cards allow you to carry out operations with the money available in your bank account, credit cards , instead of withdrawing the money directly from your bank account, the payment is made by your bank.
With debit cards, payments or cash withdrawals are directly discounted and there is no danger of spending more money than you have. On the other hand, with credit cards, the entity is giving you a small loan, therefore, once a month you have to pay the “receipt” of these payments, that is, reimburse all or part of what you have spent the previous month, although it is also possible to divide the return of the money in three ways: at the end of the month, by means of a percentage of the amount spent or with a fixed monthly fee.
When you apply for your card, you have the option of signing a credit agreement that meets your needs. At that time, you agree with the bank the maximum credit you can have. Depending on your income and your guarantees, they will recommend a limit according to your possibilities.
Keep in mind that some banks allow you to carry out operations even if you do not have a sufficient balance. These operations are known as overdrafts and always have a fixed limit that cannot be exceeded. They will charge you commissions depending on the amount of money and the time your account is in negative. Getting to the point: an overdraft is never free and in the end it can be expensive.
Finance for dummies
You will discover that the world of finance is easier than it seems.
Withdraw money at an ATM: credit card vs debit card
If you thought that the differences between both types of card were only due to the payment method, this is not all:
When withdrawing cash with a debit card issued by the same bank as the ATM, you will not have to pay any commission; however, if you decide to withdraw money using a credit card, it is likely that the bank will charge you interest for said operation. Remember that the bank is giving you the money in advance and is not subtracting it directly from your bank account.
What is the best card to pay abroad?
Both credit and debit cards can be used to pay abroad; Of course, if you are in a country outside the Euro Zone, you may be charged a currency exchange commission. Not all banks apply the same commissions, so before embarking on your next trip, check the conditions of your bank carefully.
And the prepaid cards?
Prepaid cards are cards that allow you to operate without having a bank account, since the payment provider will create a kind of electronic wallet with an online account (also known as a bankless account ). For most transactions, these institutions do not need to resort to banks.
In addition, you can also do all the operations you would do with a bank account: cash withdrawals, transfers, card payments, etc. The first thing you should do is put money on the card and, once you have exhausted that amount, you will not be able to spend more; until you recharge it again.
Unlike credit and debit cards, prepaid cards have limits on cash withdrawals, recharges or monthly or annual payments, which vary depending on the bank.
Another difference is that many payment entities do not have a banking license, which can be dangerous because it means that your money is not insured by any deposit guarantee fund. What does this mean? That you could lose your money if the entity goes bankrupt.
Credit, debit or prepaid card, which one to choose?
Now that you know the main differences between credit, debit and prepaid cards, it’s time to choose the most suitable one for you.
Debit cards are usually easy to obtain and avoid the possibility of accumulating debt. In addition, they give you the option of keeping your savings in your usual bank.
Credit cards offer you greater spending flexibility, but you run risks if you can’t repay the money on time. Prepaid cards keep you from getting into debt, but they don’t give you as much flexibility.
To help you find what you need, we give you some recommendations that you should take into account before choosing:
- Check the places where your card is accepted. Can you use it anywhere? Only in Spain or also abroad?
- Investigate about the fees and commissions that you may be charged (for withdrawing cash abroad, payments in other currencies, international transfers, etc.).
- Make sure that the account or card meets your needs (premium services, insurance, purchase guarantees, etc.).
- Check that your money will be safe (prevention against fraud, banking license, deposit guarantee fund, etc.).
Control your money
The Mobile Bank, offers a commission-free account and Mastercard debit cards accepted worldwide. You can opt for the free standard account or a premium subscription, whether you need a personal account or a freelance account. No maintenance costs or minimal use. And all this in a single mobile app that goes with you everywhere.
Frequent questions
What is a credit card?
A credit card is a payment card that allows the cardholder to borrow funds from the lender. This line of credit is a loan between the lender and the holder, which is generally paid monthly.
What is a debit card?
A debit card is a payment card that acts as a direct link to the cardholder’s bank account. When the cardholder makes a purchase, the money is withdrawn directly from the cardholder’s current balance.
What is a prepaid card?
A prepaid debit card or reload card is a payment card that allows the cardholder to reload a specified amount of money onto the card. It is usually not connected to a bank account or line of credit, and therefore the cardholder cannot spend more than the amount of money that he has loaded onto the card.