Debit cards: When are they the right choice?
Throughout 2016, Malaysian banks – both local and foreign – have been systematically replacing their usual ATM bank cards with debit cards linked to the MyDebit as well as Visa, MasterCard, or other networks. This is probably the first most people have ever heard of debit cards before; yet the feature (previously known as bankcard) has been around for some years before, and many stored-value cards (including Touch n Go) have been in the marketplace even longer. So what is the difference between a debit card and a credit card, and when should you use the one or the other? GoBear Malaysia explains it all.
Debit cards do not come with a line of credit by default; credit cards do
Debit cards, or bank cards, work by being linked to your bank account; some debit cards are prepaid (stored-value) cards instead, with the funds directly associated with the card and not with any bank account. Aside than the RM5000 per day ATM withdrawal limits mandated by Bank Negara, many bank cards also come with spending limits, which differ from bank to bank (you can request for the limit to be set lower). Prepaid debit cards have no limit at all, subject to the total amount that can be stored/loaded onto the cards. If you have arranged overdraft facilities beforehand with your bank, that is the only time when debit cards can have a line of credit.
Credit cards, meanwhile, require a line of credit to function, as can be guessed from their name. This provides extra flexibility in terms of cash flow management, but it also can lead to increased debt and financial troubles if not used wisely. This is because with that line of credit comes finance charges, which no debit cards (regardless of whether it’s a bank card or a prepaid card) have.
Debit cards are easier to apply for; credit cards usually require more documentation
Because debit cards use your own money, you do not need to prove your credit worthiness, and the issuer does not need to check your credit rating. As a result, often the only documentation required by the issuer is your ID (usually your MyKad or passport) and proof of Malaysian residence. This makes debit cards more useful for people who are usually considered bad credit risks by financial institutions. In fact, if you have a Malaysian savings account, you will most likely already be issued a debit card (which is also your ATM bank card). This also means that there is no limit to the number of debit cards you can have.
Applying for credit cards, on the other hand, usually requires you to provide proof that you can pay the issuer back for the credit you’ll be using. This means EPF statements, income tax statements, bank statements, and so on.
Debit cards authorise merchant payments immediately; credit cards pay the merchant later
While there usually isn’t a big difference between using a debit card and a credit card, at least when it comes to paying via the international networks like Visa, MasterCard or UnionPay, when it comes to payment disputes, credit cards may be the preferred choice. Because the merchant received the funds the moment the payment is authorised for debit cards, disputing charges can be more troublesome than if you used a credit card. You can minimise the hassle by using the Visa or MasterCard network, rather than using MyDebit, as the banks will then have to follow the international companies’ requirements. Nevertheless, this is something to keep in mind when making large transactions with any merchant for the first time.
So, which should you use? For most of us, it’s more a question of choice at the moment of purchase. Debit cards have the advantage in that provided you maintain a low balance in the account it’s linked to (or in the card itself, in the case of a prepaid debit card), somebody stealing your card details can’t really do much damage with it. Credit cards, meanwhile, provide you flexibility in the event that you face cash flow issues at the time of purchase, but are certain will be resolved when it’s time to settle your statement balance.
But for people who are unable to apply for credit cards, a debit card can be the perfect solution to be able to shop online or perform other cashless transactions.
Find out which credit card suits you best on GoBear Malaysia .