Debit Card vs Credit Card: Key Differences Explained
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Even the most unversed consumers have at some point heard the terms debit card and credit card. But did you know, these similar looking instruments are actually quite different and have completely different uses? So if you are unsure about when to swipe your debit card and when to use your credit card, then maybe it’s about time to learn more about the debit card and credit card difference.

Debit Cards Vs. Credit Cards

Choosing between debit and credit cards depends on your financial goals and spending habits. Debit cards provide the convenience of spending what you have, while credit cards offer more flexibility and opportunities to earn rewards. When managing your finances and purchasing, understanding the key differences between debit and credit cards is essential.

Kotak Mahindra Bank offers credit and debit cards with a range of benefits, but choosing the right option for your needs is crucial.

Let us learn more about the distinctions so that you can assess your needs and choose the right card for your needs:

Aspect Debit Card Credit Card
Payment Transactions deducted immediately from your account. Pay later; monthly bills with minimum payments and interest.
Credit Score Impact No impact on credit score; it's your own money. Can impact your credit score, depending on your credit management.
Rewards and Benefits Limited rewards, mostly cashback or discounts. Various rewards, cashback, travel miles, and exclusive offers.
Building Credit History Doesn't help build or improve your credit score. Can help establish and enhance your credit history.

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What is a Credit Card?

A credit card is a financial tool that allows you to borrow money from a bank or credit card issuer to make purchases. Unlike a debit card, it doesn't use your funds. You must repay the borrowed amount, often with interest, by the due date. Kotak Mahindra Bank offers credit cards with various benefits and rewards, making them a popular choice for managing expenses.

Pros and Cons of Credit Cards



Credit cards are super convenient and save you from the hassle of carrying cash around.

Credit cards come with interest rates, which means if you don't pay off your balance in full each month, you'll end up paying more than what you initially spent.

Credit cards play a crucial role in building your credit score, empowering you to establish a solid financial foundation for the future.

If not used responsibly, credit cards can lead to debt accumulation and impact your credit score negatively.

Credit cards offer flexibility in terms of spending, thanks to their relatively high credit limits.

Identity theft is a real threat, and credit card fraud is one of the most common forms of identity theft.

You get Rewards and benefits such as cashback, points, airline miles, and discounts. These rewards can add up and save you a lot of money in the long run.


How Do Credit Cards Work?

A credit card works by allowing the cardholder to make purchases on credit, up to a certain limit set by the bank or issuer. This means that when you swipe your credit card for a purchase, you are essentially borrowing money from the bank or issuer. You can then repay this borrowed amount by the due date, without any interest if paid in full within a grace period, or with interest if you choose to carry a balance.

For a credit card, the applicant gets a credit line from the bank, which means they can treat it like a short-term loan. Once their credit card request is approved by the bank, post assessment of credit history and financial stability, the applicant can use the card to shop, for a vacation, educational courses, health emergencies and much more.

How Credit Card Transaction works

While doing online transactions, the websites will ask for the following details when it comes to payment matters: name on the card, credit card number, CVV2/CVC2 code and expiry date. Once a transaction is initiated with your credit card, it goes through multiple stages before it gets approved or declined.

Authorization: When you swipe your credit card at a store or enter your details while shopping online, this information is sent to the bank for authorization.

Authentication: The bank will then validate the card details and check if they are correct or not.

Authorization Request: Once the authenticity of the credit card is established, an authorization request is sent to the network associated with your credit card (VISA/MasterCard/AMEX).

Approval/Denial: Based on the response from the network, your transaction will be approved or denied.

Settlement: If the transaction is successful, the bank will transfer the funds to the merchant's account, and your credit card bill will be generated.

Payment: You must pay your credit card bill by the due date to avoid any interest charges.

What is a Debit Card?

A debit card is a financial tool that allows you to spend money directly from your bank account. It does not involve borrowing, so there is no interest to pay. Kotak Mahindra Bank offers debit cards with benefits similar to credit cards, like reward programs and discounts. They provide a convenient way to access funds and manage day-to-day expenses without accumulating debt.

How Do Debit Cards Work?

When you use a debit card for a transaction, the funds are immediately deducted from your bank account. This means that you can only spend up to the available balance in your account. Debit cards also typically have daily spending limits set by the bank, which helps prevent overspending.

Opening a savings or current account is mandatory to apply for a debit card as these two have to be linked. Once your debit card request is approved and you receive the debit card you can enjoy easy cashless transactions such as shopping, bill payment and even for cash withdrawals at ATMs.

Pros and Cons of Debit Cards



No debt incurred; uses own funds.

Limited protection against fraudulent transactions.

No interest charges; more cost-effective.

Tracking expenses is essential to avoid difficulties in reconciling.

Functions as an ATM card for cash withdrawals.

ATM fees may apply for withdrawals from different banks.

Seamless and fast approval process.

Inability to keep disposable cash in the account.

How Debit Card Transaction works

  • Verification: When you swipe your debit card or enter your details online, the merchant will verify if the account has sufficient funds for the transaction.
  • Approval/Denial: If there are enough funds in the account, the transaction will be approved, and the funds will be deducted immediately. If there are insufficient funds, the transaction will be declined.
  • Settlement: The merchant's account will receive the funds from your bank account directly once the transaction is successful.
  • Payment: As there is no borrowed amount involved in a debit card transaction, there is no need for repayment or payment of interest.

Ease of Getting a Debit Card vs Credit Card

A key difference between credit and debit card is, obtaining a debit card is simpler than getting a credit card. If you have a bank account, a debit card can be issued to you. But in the case of a credit card, the bank holds the payment power. And as the issuing authority they thoroughly scrutinise your credit history, credit score and credit utilisation ratio among many other things before approving your credit card application.

Different Securities for Debit Card and Credit Card

A credit card is more secure as the issuing bank decides the credit line and has an insurance policy in place against any fraudulent transactions. But a debit card has minimal protection without any secondary party to cover the card security. That’s another prime difference between debit and credit card.

Which Is Better - Credit Card or Debit Card?

Whether you want money from your account to be used up now or later is the determining factor here. If you are someone who requires large sums of money and has the capacity to pay it off in time, you can opt for a credit card. However, if you are not too strong financially and don’t want to get caught up in the cycle of overspending, you can play it safe with a debit card. Both these cards have their own benefits and drawbacks.

Now that you have understood how debit cards and credit cards are different, you can use them effectively to enjoy your much-deserved financial freedom, albeit with a little bit of caution.

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Frequently Asked Questions

1. How do credit cards and debit cards differ in terms of payments?

Credit cards allow you to make purchases with borrowed money, to be paid later, often with interest. Debit cards use funds directly from your bank account for immediate payments.

2. Can I overspend with a debit card like I can with a credit card?

No, you cannot overspend with a debit card since it uses funds from your bank account, limiting you to what you have available.

3. Do credit cards and debit cards offer the same level of fraud protection?

Credit cards generally offer stronger fraud protection with zero liability for unauthorised charges. Debit cards provide protection but may involve longer resolution times.

4. Which is better for online shopping: credit card or debit card?

Credit cards are often better for online shopping due to added security, rewards, and EMI conversion options. Kotak Mahindra Bank offers credit cards with these advantages for a safer and more rewarding experience.

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Frequently Asked Questions


Can I transfer money from my credit card to another account?


 You can transfer money from your credit card to another account with netbanking, money transfer credit card, placing request via phone call or digital payment methods to make a direct transfer. If a direct transfer is restricted, you can opt for ATM cash advances in your bank account through your credit card or paying ‘cheque to self’.

What is the coverage scope of CPP membership in India

The coverage under CPP credit card protection membership in India is generally limited to the protection against loss, theft or misuse of the member's credit cards, debit cards, and other cards. CCP credit card protection also protects unauthorized transactions and emergency card replacement services.

Is a Credit card protection plan mandatory?

Protection plans for credit card fraud protection are optional. However, if your cards are ever lost or stolen, this is a great method to feel more secure and at ease. A wide variety of benefits, including monitoring for fraudulent activity, compensation for losses, and new cards in the event of theft, are available through plans of this sort.

How can I tell the difference between a debit card and a credit card?

Credit cards are debt instruments. Debit cards are not. 

The basic difference is - a credit card allows you to pay at a later date for your purchases, but a debit card deducts the money from your account linked with the bank to make the payment. 

Can I cancel my credit card protection plan?

You must contact the bank's customer service to terminate the credit card fraud protection Plan. You must call from the cell phone number associated with your account. If you don't, your request can get stuck in limbo. This precaution should be taken before making the call.

Can I earn reward points on debit cards?

Debit cards provide you the opportunity to earn rewards, withdraw cash, shop online or offline, pay bills and much more.

Different debit cards come with different reward points. This makes it interesting for the customer as they enjoy the benefit of earning rewards while spending the funds in their accounts.

Is it better to use a debit card or credit card for certain transactions?

Credit cards should be used when you have insufficient funds and require a loan to make the purchase.

Whereas debit cards should be used when you have sufficient money in your savings account for a successful financial transaction.

Are there any limits on the amount that can be withdrawn using a debit card?


As the debit card is connected or linked with your savings or current account, the funds in these accounts is what is available for use. Apart from this, debit cards may have a daily or monthly cash withdrawal limit as well, which depends on your account type.

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Disclaimer: This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein. Tax laws are subject to amendment from time to time. The above information is for general understanding and reference. This is not legal advice or tax advice, and users are advised to consult their tax advisors before making any decision or taking any action.