Debit vs. Credit: What are the Differences?

Chances are you’re entering the high life of adulthood with all the panicked readiness we all pretty much excel at. Welcome to the club. Accounting and the prospect of managing a bank account are probably the first things thrust in your face right after “how to do laundry” and “how to engage in tedious social interactions”; it’s about time you figured your way around that.

Debit and Credit are two terms that are frequently used in the transactions realm. Whenever you want to purchase something, you’re given three payment options: credit card, debit card, and outright cash.

When it comes down to it, whether you’re using a Debit or Credit card, the merchant receives his money firsthand. The difference lies behind the scenes in the withdrawal process of the money.

What is Debit?

As we’ve mentioned, you can use Debit (your debit card) for making a purchase, and it’s pretty much the closest thing to cash you’ll ever get. Your debit card is linked directly to your bank account, and it constitutes a stable connection that allows you access to the money you actually own.

Basically, you have money deposited in your bank of choice (transferred to your bank account), and all you’re really doing is withdrawing the fund you need in any given transaction. When you receive your debit card, your checking account becomes a standing money vault you can access through swiping machines in respective stores.

You can also withdraw a certain sum of money using any available ATM machine. Usually, you are given a PIN for your debit card which, once entered, signals for an immediate deduction from your bank account.

The only issue that some people have with debit cards is high fraud liability. Say your card is stolen and purchases are made; the amount is still deducted from your balance, and it could take a very long time for a proper investigation to take place.

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What is Credit?

When you choose to use your credit option in transactions, things can get a little more complicated. Unlike debit cards, credit cards are connected to the financial institution (often the bank) which issued those cards.

Credit cards allow for a “loan” realization as you’re allowed to borrow money from your card’s issuer, not withdraw from your own available money. You are then expected to pay the amount back full (usually in 30 days) or else face interest consequences.

Another major difference between credit and debit is the immediate withdrawal option; Credit card purchases don’t necessarily lead to an instantaneous deduction allowing for a fraud-detection system. This is actually one of the pros of using credit instead of debit; the fraud liability is rather low, and it can be nearly impossible for you to lose money.

Usually, the use of credit requires your signature and, in some cases, an assigned code, but the process is entirely run by the credit card company. Also, there is a monthly bill to be paid and a limit on money withdrawal.

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Differences between Debit and Credit:

It’s really important to understand the proceedings of your financial transactions. Here is a Debit vs. Credit comparison table to pinpoint all the major differences between the two:

Debit Card	Credit Card
Your Debit card is directly linked to your bank account	Your Credit card is connected to the financial institution that issued the card
Funds are withdrawn from your personal owned money	Money is “borrowed” from your provider
Immediate money withdrawal	Not necessarily immediate depending on the bank and transaction
Requires a PIN	Requires your signature
Practically no limit on withdrawal (you are limited by your current balance only)	There is a limit on withdrawal or else you face fees
No bills are expected	Requires a monthly and sometimes annual bill, and if you don’t pay back full, interests enter the deal.
High fraud liability	Low fraud liability