What is the difference between a credit card and a debit card?

Debit card

The card is associated with the holder's current account and payments are usually charged directly to the account, instantly. This means that the debit card can only be used with the money deposited in the current account (though overdrafts are sometimes allowed).

Credit card

You can use these types of card to pay or get cash up to the credit limit which the issuer has assigned to the card; this limit will depend on your creditworthiness. Basically, the company is advancing you money which you are expected to receive shortly. Credit cards often use “end of month” repayments for your payments or cash withdrawals. It is simple: once the monthly settlement period has ended, the total amount you have used that month, with interest, is debited from your current account.

With some credit cards, you repay the balance drawn down as if it were a normal loan, paying a number of fixed instalments until the interest is paid and you have repaid what you have borrowed. Interest accrues on a daily basis, and is payable monthly at the nominal monthly rate set out in the credit agreement.

Deferred (revolving) credit card

This is a special type of credit card. Customers can draw up to the credit limit granted but they don't have to repay all they have drawn down at the end of the month or within a given period. Instead, they simply repay the credit drawn down by paying regular deferred instalments, which may be a percentage of the debt or a fixed instalment. The customer can choose and change the amount of these instalments during the term of the credit agreement, although the bank will always have certain restrictions. The amount of the fees may vary depending on the use made of the card (purchases, cash withdrawals, etc.) and the payments made (basically, through the monthly settlements, although there are other items such as reimbursements on purchases, etc.).

The amounts of the regular instalments to repay capital become part of the customer's available credit (hence the name, revolving) “”, so it is basically like a loan which is renewed on each settlement. The agreed interest rate is applied to the capital drawn down.

All the interest, fees and other expenses chargeable to the customer are added to the other card transactions. This means when the interest rate is applied, and the customer has low monthly repayments, it will take a long time to repay the principal, and the interest will be high (the customer can get round this by paying a higher monthly instalment).