Can you use the terms credit cards, charge cards, and debit cards interchangeably? Or, are there some key differences between each that everyone should know about. Thankfully, the answers to these and other related questions can be found online.
So, let’s get started by discussing their similarities and their differences.
Similarities in all 3 Cards
First off, all 3 of these cards can be used to pay for things that the cardholder wants to buy. They are all a form of tender that people use every day to purchase items in physical brick and-mortar stores and online. These cards are used in place of paying cash. There is also a limit on the amount that can be used. Therefore, every individual needs to know the amount that they can spend without being declined.
Differences that Make Each Card Distinct
Just like there are similarities, there are differences, too. And here is what makes each card distinct.
Debit Cards
There is a pre-set limit on debit cards that the cardholder cannot go over. These limits are based on the amount of money that back-ups each debit card. For instance, most debit cards are issued with a specific amount loaded on them. Here are a few examples of the different types
Banks issue debit cards to their account holders, and they can be used to obtain cash without writing a check.
Some employers issue 3rd party debit cards to their employees instead of issuing out paper checks for their payroll.
Retail stores issue debit cards in the form of gift cards.
The primary differences between a debit card and credit/charge cards are as follows:
The cardholder can only use the amount of cash that is placed on the card. Unlike the credit card and charge card, the money used is not a loan nor does it accrue interest.
Debit cards can be disposed of when no money is left on the card. Or, the cardholder could load another pre-set limit.
No credit checks are required for a debit card. Anyone can obtain a debit card.
Credit Cards
Similar to debit cards, most credit cards have a pre-set limit. These limits, however, are based on a specific line of credit that the credit company (i.e. Visa, Mastercard, Discover) approves (i.e. $300, $500, $10,000). Essentially, it is a loan that must be paid back.
Banks issue credit cards to anyone who applies, and they can also be used to obtain cash or pay for different things (i.e. bills, gas, food and etc.)
Credit companies like Visa, Mastercard, and Discover issue their own credit cards.
Accrues a certain amount of interest
Payments on the card are due monthly – minimum amounts due or can be paid in full
Charge Cards
Unlike debit/credit cards, no preset limits are a requirement. Charge cards are often issued by businesses their own employees (i.e. for travel expenses and etc.). For example, it is essentially a loan that must be paid by a business.
Payment terms are not as flexible as credit cards
Must be paid in full on a monthly basis
Best charge cards do not have a preset limit
No interest to accrue
As you can see, all 3 cards have both similarities and differences. Therefore, it is important that you understand the terms and conditions of each. Particularly, as it relates to preset limits, accrued interest, and the amounts that must be paid back each month.