Is it Better to Get a Credit Card or a Debit Card in India?

Plastic money has made life easier and their popularity is well evidenced by the number of credit and debit cards active in India. According to the Reserve Bank of India, 44.2 million credit cards were functional in India in 2018! Between December 2017 and December 2018, approximately 8.7 million credit cards and 115.7 million debit cards were generated, says an article on Medianama

But which of the two should you choose? Here’s a look at the pros and cons of each type of card that you should know before making a final decision.

Credit Cards in India

If you are deciding if credit cards would be right for you, here are a few things to consider before making your decision. 

Also read: Best credit cards in India.

Advantages of Credit Cards

  1. Credit cards can be immediately cancelled, if you happen to lose them or they get stolen. Most banks have stringent security measures to make sure your account is safe from fraudulent transactions, if your card is misplaced.
  2. Credit cards conveniently reduce the necessity to carry cash. Almost all retailers and ecommerce stores accept credit cards as a mode of payment.
  3. In case you pay the full balance before the statement period is over, you get interest free days on future purchase for a particular timeframe. 
  4. You can safely fall back on credit cards when you need to cover unexpected expenses and you don’t have enough cash on hand. However, make sure to repay the amount before the interest mounts. 
  5. Unlike reward cards, which gets you points for making particular purchases, cash back cards transfer the amount directly to your bank account. These cards let you save money on your monthly expenses, according to your credit card’s cash back rate. The standard card will get you anything between 1%-5% cashback on your purchases. Some even offer high rates of up to 10% during bonus periods.
  6. If you travel often, Frequent Flyer credit cards can be a great option for you. They are similar to reward cards, where you earn points by making purchases of air tickets. These cards are designed for the sole purpose of spending your collected points on flights, airport lounges and other airport-related services. They let you use your points to upgrade your economy seat to business and first class as well.
  7. Almost all credit cards come with multiple consumer protection measures, which include rental car insurance, purchase protection insurance, travel insurance and more. These complementary services can save you time and money. 
  8. With a minimal currency conversion fee, you can easily use your credit card for shopping while traveling overseas. If you are a frequent international buyer at overseas online stores, some credit cards waive fees for purchases.
  9. Many balance transfer credit cards allow you to shift the high interest debts to a new account, with promotional interest rate as low as 0%. This saves you from interest rates and helps you repay your debt quicker.
  10. Two important parts of your credit profile are credit card account details and payment history. If you keep your account in good shape, this information will help you achieve a good credit score, which increases your chances of approval for future loans.

Disadvantages of Credit Cards

Also read: How to choose the right credit card

  1. In case you carry over balance one month to the month, you will need to pay interest charges. Advance interest rates can shoot up to as high as 22% APR, so you could end up paying thousands more than you need to. So, paying off credit card bills on time is a must.
  2. Fraud schemes most often target credit cards. Although you will be compensated for any illegal transactions via your account, dealing with such fraud can be a stressful and time consuming. 
  3. Financial institutions often make the process of using credit cards to get cash or carry on cash-related transactions quite expensive. Cash withdrawals could entail fees worth about 3% of the total transaction amount. Even worse, it incurs an interest rate of 19%-22% immediately.
  4. Credit cards make our lives convenient, but they induce overspending too. With credit cards, you could be tempted to spend more than you have in your bank account. This will then lead to credit card bills that are difficult to repay, and you could end up in a deadly debt trap. 
  5. Depending on which card you possess, you will be charged a certain amount when you miss a payment on time. This will happen when you have overspent your credit limit, for your overseas transactions, balance transfer charges or even for reward programs. The worst thing is that if you are not eligible for interest free days, the interest applied on these charges could pile up.
  6. Most credit cards have an annual fee. They can be as low as ₹1,767 or as high as ₹85,766 per year, depending on the type of card you have. The more perks you want, the higher will be the fee.
  7. Using a credit card only means that you are borrowing money, but definitely not for free. Mishandling your credit card will result in high balance or a maxed out card, as well as high debt in the form of interest and fees. 

Debit Cards in India

Also read: Best debit cards in India.

Debit cards might look like credit cards but function more like cash and personal cheques. They are linked to your bank account and function in two ways. You can use your debit card to withdraw instant money from ATMs or you could use them for transactions, where the money is automatically debited from your bank account. Here’s a look at the other pros and cons. 

Advantages of Debit Cards

  1. With debit cards, there is a limit on how much you can spend, depending on the balance in your bank account. Your card stops working as soon as your bank balance reaches zero. This can be really helpful if you are a shopaholic, who cannot resist spending. However, when you run out of money and you are in dire need of it, you can always opt for overdraft protection.
  2. Debit cards do not have annual fees or interest charges. Only some standard debit cards require maintenance fees, if you do not qualify for any waiver. However, cash withdrawals with debit cards are free of charge and there are no extra or hidden fees to worry about. 
  3. Debit cards are widely accepted when you are travelling away from your city or country. You just need to inform the bank that you are leaving the city, so that they don’t block services when the card is used at a different geographic location.
  4. Debit cards are convenient to use. You can make purchases using a chip enabled terminal, by simply swiping the card rather than filling up a paper cheque. All transactions involving a debit card are instantly processed, with money being directly deducted from your bank account. You need not wait for days for the transaction to be completed.
  5. Debit cards usually operate with a 4-digit PIN, which is exclusive to you. This PIN protects you from potential threats. If you do lose your card or it is stolen, it cannot be operated without the PIN. In any case, you can inform the bank immediately and block the card. 
  6. Acquiring a debit card is easier than obtaining a credit card. All you need to do is open a bank account with any bank, with a minimum deposit. Things like credit score and payment history are not required for a debit card. 

Disadvantages of Debit Cards

  1. There are no chances of building a credit score with a debit card. Credit scores are useful when you need to take a loan, as well as for other approvals. 
  2. There is no grace period. A debit card will deduct funds directly from your account. This means you will not be able to borrow funds on credit and leave some cash in your account.
  3. If you are using your debit card at ATMs that do not belong to your bank, you might have to pay a fee.
  4. Instant cash withdrawal also means instant fraud! If you do not report the card loss immediately, the fraudster might get hold of your PIN and empty out your bank account!  
  5. Although debit cards have zero liability policies to make them safe, you will not be able to bargain on charges, if there are any issues. 

Credit vs Debit – Which is Better in India?

Credit cards are usually a good choice for purchases. Online or offline shopping is made convenient with credit, since they can keep you protected in multiple ways, like guarding your checking account, provide warranties and many more, which debit cards cannot.  

Debit cards are better for withdrawing cash or to help you stop overspending. Your fee will be kept at a minimum too. If you use safe ATMs, your card information will stay safe.

The key to choosing between them, then, depends on your spending habits and the type of safety net you wish to maintain.

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Mani Karthik

About the Author

Mani Karthik

Entrepreneur, Mentor & Blogger.
I help business grow & scale. Have helped 15+ companies scale in US, Middle East and India.
I share everything I learned on this blog, so that you benefit. Here’s more about me.

One response to “Is it Better to Get a Credit Card or a Debit Card in India?”

    Is there any bank in india which gives credit cards for NRI’s, by accepting US employer details / US credit Score etcc.., ?

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