A credit card is different from a debit card. HOW?

A credit card is different from a debit card. HOW?
Source: Emmanuel Nii Odartey Lamptey Head, Card and Payment Solutions, Stanbic Bank
Date: 18-12-2018 Time: 08:12:20:am

At this point, I am confident that the haziness that clouded the knowledge of credit cards has been cleared somewhat.

However, how the card differs from a debit card is still an issue for many and in this article; I will attempt to clarify the differences, beginning with some scenarios.

Scenario One

Kojo’s wife had had a new baby the week earlier and had spent all the money in his current account on hospital bills. The baby food they had stocked up ran out earlier than anticipated. So his wife, Araba, asked him to get some from the grocery shop around the corner. After filling his shopping basket, Kojo proceeded to the counter to pay his bill.

Kojo gave the lady his debit card forgetting that he had emptied his account. After two dips to pay the lady breaks the rather unfortunate news to Kojo. He did not understand why a bank he has been with for the past two decades would not allow him to withdraw money he did not have in his account so he pays back later. Clearly, Kojo had mistaken a debit card for a credit card.

Scenario Two

Ama, a Business Executive, meets up with her friends on a Friday night for an after work hangout. She promises her friends she would  cater for the bill and all they had to do was to show up. After an exciting evening of food, drinks and laughter, Ama reaches for her bag to pay for the bill. She takes out both her credit and debit cards. Amaremembers she has no money in her bank accountso she hands credit card to the waiter for the payment and she is sorted. She would settle her bank later.

These are everyday scenarios that most of us find ourselves in, in the usage of debit and credit cards. Debit cards and Credit cards are very often confused in terms of their use largely due to a lack of knowledge on the uses and qualitative differences between the two cards. Debit cards and credit cards functionin similar ways. Both carry the logo of a major card issuer, such as Visa or MasterCard, and can be dipped, tapped or swiped at retailers to purchase goods and services. Below are some differences between the two:

Debit Card

Credit Card

When purchasing itemswith the debit card, the money comes directly from your bankaccount

Howeverwith the credit card, the purchase is charged to a line of credit for which you pay later.

Debit cards, are not debt instruments because whenever you use a debit card to make a payment, you are just tapping into your bank account credit balance.

All credit cards are debt instruments. Whenever you use a credit card for a transaction, you are essentially just borrowing money from a company, because you are obligated to repay the credit card company,

With a debit card, you must have enough money in your account or an agreed overdraft to cover the transaction.  A utilized overdraft on a bank account attracts interest from the very first day.

A credit card is not linked to your bank account. It is a credit facility (loan on a plastic) that allows you to buy things immediately, up to a pre-arranged limit and pay for it later, you then have a choice of paying off the bill in full by a duedate with no interest paid or paying at least a minimum amount every month, which allows you to reuse the paid amount again.

As you pay off the outstandingmonthly balance or instalmentsthe funds become availableto use again up to thecredit limit

The distinction between debit and credit card becomes blurred if a debit card user decides to obtain anoverdraft. In this case, whenever a person performs a purchase transaction more than money  available in his or her bank account, the bank will allow the person to overdraw the bank account up to the limit granted  to cover the purchase transaction. The bank account-holder is then obligated to repay thefull overdrawn amount  with interest.However, a credit cardholder will get up to 55 days interest-free,which means they have interest free creditif they decide to pay back their outstanding account balance in full each month.

The credit card market in Ghana is an emerging one characterized with lots of apprehension by consumers largely due to a lack of understanding of the uses and benefits of the card. Even for the ‘Kojos’ and ‘Amas’ out there who have acquired the card, its appropriate usage is a huge problem. Credit cards have lots of benefits for consumers when used appropriately and for the right purposes but for a start, identifying its qualitative difference from a debit card is critical for consumers to appreciate the card.