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What are the differences between debit cards and credit cards?

Think debit cards and credit cards are pretty much the same thing? Think again. Although they may look almost identical, they are in fact two very different products.

The major difference is that when a debit card is used to purchase goods or services, the money is withdrawn directly from a current account. In contrast, a credit card creates a debt when used, which must be repaid within a specific time period.

Due to their differences, debit cards and credit cards may be more suited to different people. Read on to find out whether a debit card or credit card could be the best fit for your circumstances.

Debit cards

Debit cards can be used to purchase a variety of goods and services across the world. Doing so is very straightforward, with a PIN being required for purchases over £30, while contactless features may be available for transactions of under £30.

Since a debit card is always linked to an individual’s current account, when it is used to purchase goods or services the issuing bank places a hold on the amount that has been spent. This money leaves the account shortly after the transaction. This means that, with a debit card, unless an overdraft in place, it is only possible for someone to spend what is in their current account.

Debit cards can also be used to withdraw cash from cash machines. The debit card issuer does not charge for withdrawals, although the cash machine provider may charge a fee for the service.

Credit cards

When a credit card is used to purchase goods or services, a debt is created by the card issuer. The credit card holder is sent a monthly statement with details all of their transactions, and has a set amount of time to repay the debt. Should the balance not be cleared within the set period, interest will start to accumulate on the debt.

For all purchases of £100 or more, credit cards provide greater protection than debit cards for consumers. Section 75 of the Consumer Credit Act states that a credit card issuer is jointly liable with the retailer if anything is wrong with the goods or services, for example if a company goes under before goods have been delivered, or goods prove to be faulty.

Cash can be withdrawn with a credit card from a cash machine. However, interest is generally charged on cash withdrawals, which makes them a costly means of obtaining cash when compared with a debit card.

Which is most suitable for you?

Deciding whether to use a debit or credit card depends on your own personal circumstances. For individuals who are concerned that they may end up spending more money than they have in their current account, a debit card may be a better idea. However, for consumers who are looking to have greater financial flexibility in terms of the amount of time they have to pay for goods and services, a credit card could be more appealing.

For goods or services that cost £100 or more, it may be prudent to pay at least part of the transaction on a credit card, due to the added protection it offers.

Because it may be worthwhile having a credit card for larger purchases, and because current accounts usually come with a debit card, many consumers may find that they have both a debit card and a credit cards, with them being used interchangeably depending on the situation.

There are a lot of credit cards on the market. Some are great and others are… well, not so much. So how do you choose? Our list of the top credit card offers is a great place to start.

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