What are the differences between debit and credit cards?
15 May 2019
When you open a bank account, you are provided with a cheque book, a passbook and an ATM-cum-debit card, also known simply as a debit card. After you’ve held your account with the bank for some time, the bank may even offer you a credit card. However, many people are often confused about the difference between debit and credit card and often assume them to be the same. So, we’ve listed the differences to help you understand. Let’s start with understanding the meaning of each card .
What is a debit card?
A debit card is a card that is linked with your savings or current bank account. When you open your bank account, the bank issues a card that you can use at ATMs and PoS terminals to withdraw money or pay for your expenses, respectively. The sums are automatically and instantly debited or deducted from your debit card. Banks provide free debit cards and charge a small annual maintenance fee.
What is a credit card ?
A credit card is another type of bank card through which you can borrow money for a bank or financial institution. The issuer provides you with a line of credit, also known as a credit limit. This limit is determined based on your income and can be increased from time to time. The issuer bills you for your credit card expenses, and you need to pay them off by a stipulated date. If you fail to repay the sums borrower on credit, the issuer levies an interest rate on the money borrowed.
Also Read: A Complete Guide to Debit Card
Credit card vs debit card
Having explained the meanings of credit and debit cards, let’s find out what is the difference between credit card and debit card. They are as under:
• Bill vs account statement
People who have a credit card are sent a bill for the expenses incurred on the card each month. The issuer sends a bill explaining the minimum and total sums due. In the case of debit cards, the account holder can directly access the savings account to see the expenses incurred.
• Linking the card
The debit card is linked to your savings account, whereas the credit card is linked to the financial organisation or issuing bank offering the credit facility.
• Credit vs spending limit
Typically, credit card companies provide a credit limit, and you cannot borrow sums exceeding the credit limit. In the case of debit cards, banks issue daily cash withdrawal as well as PoS spending limits.
• Interest charged
The credit card issuer levies an interest rate if one is unable to repay the amounts borrowed on time. However, in the case of debit cards, money is not borrowed on credit, so no interest is charged.
Also Read: Complete Guide on Credit Cards
Apart from the points mentioned above, a significant aspect of difference between debit and credit card is that debit cards are provided free of charge by the bank. In contrast, credit cards may be availed through an application or by invitation only.
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How to Remove Car Loan Hypothecation After Car Loan Repayment
A secured loan is a loan in which an asset is hypothecated to the lender. Since the lender finances the purchase of the asset, the original purchase papers of the asset are with the lender. When it comes to purchase of a home, the asset’s ownership shifts to the borrower once he has completely repaid the loan. In gold loans, the gold is left under lock and key with the lender. Once the loan is repaid, this gold is given back to the borrower. However, it is not the same when it comes to a car loan.
In a car loan, the car purchased is hypothecated to the lender. The lender pays the funds to purchase the car. However, a car also has to be registered with the Regional Transport Office (RTO) before it can be driven on the road. In such a case, the name of the lender appears on the registration certificate (RC) of the vehicle/ in the records of Regional Transport Office. This means you need to take a few additional steps once the car loan is repaid for car loan hypothecation removal. Once the car loan hypothecation is removed and the car’s ownership is completely in your name, then you will have a clear title and ownership to your car. This is especially important while getting insurance. In case anything happens to the car, the Insurance claim will go to the owner of the car, which in case of hypothecation, will be in favor of the lender.
This is why car loan hypothecation removal is important.
How to remove hypothecation from RC after car loan repayment/termination:
Step 1: Repayment of car loan
In the hypothecation agreement of car loan, the name of the lender appears as the owner for the car. To start the procedure for removal of the lender’s name, you need to repay the car loan completely. The loan must be paid off and a nil balance must appear in the lender’s books.
If you are planning to prepay your car loan, it is better to inquire with the lender about their prepayment charges and conditions. Sometimes lenders have prepayment charges on these loans and this can go up to 2%.
Once you’ve completely paid off the loan, you need a no dues certificate from the lender. This certificate will state that you have completely discharged the dues to the lender.
Step 2: Collection of documents from the lender
Once the loan is repaid, the lender will give you the no dues certificate. Along with this, you need to collect:
No objection certificate:
This certificate states that the lender does not have any objection with car loan hypothecation removal. One important point to remember is that you must take multiple copies of the No Objection certificate. This No Objection certificate will need to be submitted to the RTO and to the Insurance company. You will also need one copy for your own records. Usually, the no objection certificate is valid for 3 months. So, you must approach the RTO immediately after you get the no objection certificate.
Form 35
This form is a notice of termination of hypothecation. This form also has to be made in triplicate or in 3 copies. Each state usually has its own format for this form which can easily be found online or at the RTO.
Step 2: Submission of documents to the RTO
Once you have the documents from the lender, you need to visit the Regional Transport Office or the RTO with a set of documents that includes:
Original form 35 signed and stamped by the borrower and bank
Original Bank No Objection Certificate
Attested copy of PAN
Attested copy of insurance policy of car
Original Registration Certificate
Address proof
Copy of Pollution Under Control (PUC) certificate
These documents will have to be submitted to the RTO. If your address does not match the address in the registration certificate, you will need to submit Form 33 which is for change of address.
Once you submit these documents to the concerned officer at the RTO, they will get them verified. You need to pay the respective fees to get the process completed. The officer will give you a time and date on which you can collect your updated Registration Certificate (RC)
Step 3: Collect your updated Registration Certificate
The date and time for the visit will be specified when the documents are submitted. When you visit the RTO on the specified date, you will get the updated RC. If there are any mistakes in the details, you can get them corrected and collect the RC on a future date. Once you collect your updated RC, you will have completed all car loan hypothecation removal formalities.
EMI - Definition, Understanding & Why EMI is Important?
A loan is always taken for a specific purpose, be it a housing loan, an automobile loan, an education loan or a personal loan. Whenever a loan is taken it has to be returned to the lender. These repayments are done in a specific format where the amount is deducted from the borrower’s account on a particular day of every month. The amount so deducted is also pre-decided and depends on various factors. This standardised deduction in financial terms is called as Equated Monthly Instalment or EMI.
The value of the EMI depends on four main factors. These are the amount borrowed, the rate of interest to be charged on the amount borrowed and tenure for which the loan is borrowed and the type of loan fixed or floating. If the loan is a floating one then there is one more component that affects the EMI which is called ‘Rest’.
All other parameters being equal higher the principal amount borrowed higher will be the EMI. Similarly, a higher interest rate would mean higher EMI, all other things being constant. If the amount borrowed and the interest rate is constant then a higher tenure would mean lower EMI and a lower tenure would mean higher EMI.
In the case of both the fixed and floating interest rate loan, in the first EMI outgo, the interest rate component is the highest and the principal is the smallest. By the time the borrower reaches the last EMI, the interest component is the smallest and the principal is the maximum.
In case of a fixed interest loan, the EMI remains the same throughout the period of the loan. While in the case of a floating interest rate loan, the borrower has the option of reducing the EMI amount periodically as per change in the interest rate or allowing the EMI to be constant and the period to reduce.
The borrower has the option of part prepaying his loan. Whenever this happens the option available to him is to either ask the lender to reduce his EMI amount from the date of repayment or to let the EMI amount remain the same but reduce the period of the loan.
In the case of a housing loan, the interest and principal that is being paid through EMI, is summed up at the end of the financial year to calculate its impact on tax benefits that the borrower can avail of.
In case a borrower defaults on any EMI the lender will impose a penalty on the non-payment or late payment that was missed/delayed..
In the case of regular - non-payment of EMIs, lenders will be taking more severe action to recover their money and the CIBIL score of the borrower is adversely effected, resulting in adverse effect on credibility of borrower for future loans.
The good part about EMI is that the borrower knows exactly the amount that will be going out from his bank account and on which date it will be deducted. The lender also benefits knowing the cash flow that will be coming into his account every month.
