Debit Vs Credit Vs Prepaid Card: In the era of digital payments, people definitely have some card or the other. Many people hold all three cards, debit, credit and prepaid. But the real challenge is to understand the difference between these cards and to know which card is most beneficial at which place. All three cards look similar, but their working method, risk, security, limit and purpose of use are completely different.
1. Debit Card
Debit card is one of the most common and safest payment instruments. It is directly linked to your savings or current account. Whenever you make a payment, the amount is immediately deducted from your bank balance. This means that you can spend only as much as is available in your account. Debit cards can be easily used for everyday shopping, petrol pumps, grocery stores, medical bills and online shopping. The facility of withdrawing money from ATM is also available through this card. However, its major drawback is that if the card becomes a victim of fraud like skimming or cloning, then your bank balance is directly affected. Overall, debit card is best for everyday needs and small expenses.
2. Credit Card
Credit card is like a kind of short term loan. In this, the bank gives you a fixed credit limit, which you can use as expenditure. Here the payment is not immediately deducted from your bank account. You get an interest-free period of 20 to 45 days to pay the bill every month. By paying with credit card, you get many benefits like cashback, reward points, air miles, dining offers, movie discounts and EMI facility on large transactions. Apart from this, credit card also improves your credit score, which helps in taking loans in future. However, if the bill is not paid in full on time, heavy interest is charged, which can go up to 30–40% per annum. Some users spend more than necessary after seeing the limit. Therefore, without planning, credit card can also cause harm. On the other hand, even if there is a risk of fraud, the bank balance is not immediately affected but there may be a loss. Therefore, credit cards should be used only by those people who can control their expenses and pay the entire bill on time every month.
3. Prepaid Card
The concept of prepaid card is simple. It works like a ‘rechargeable card’. In this you load money in advance and can spend up to that limit. It is not directly linked to your bank account, so there is no risk to your main bank balance in case of fraud or misuse. Prepaid cards are often used for online subscriptions, OTT services, travel cards, metro cards, gift cards and for children/employees with limited budget. Many people use it to keep their expenses under control. The biggest feature of this card is that your spending limit is only what you have put in the card. This does not cause the problem of overspending. If you want security in online payments, a prepaid card is a better option, as the main bank account is completely isolated from the perceived risk. Talking about the shortcomings, it has to be recharged every time and sometimes it is not accepted everywhere. Still, prepaid card is considered to be the easiest, safest and economical option for travel, children’s expenses, limited budget planning and secure online payments.
