Advantages and disadvantages of debit cards

Debit and check cards, as they have become widespread, have revealed numerous advantages and disadvantages to the consumer and retailer alike. Advantages of debit cards are as follows:

• A consumer who is not credit worthy and may find it difficult or impossible to obtain a credit card can more easily obtain a debit card, allowing him/her to make plastic transactions.
• Use of a debit card is limited to the existing funds in the account to which it is linked, thereby preventing the consumer from racking up debt as a result of its use, or being charged interest, late fees, or fees exclusive to credit cards.
• For most transactions, a check card can be used to avoid check writing altogether. Check cards debit funds from the user's account on the spot, thereby finalizing the transaction at the time of purchase, and bypassing the requirement to pay a credit card bill at a later date, or to write an insecure check containing the account holder's personal information.
• Like credit cards, debit cards are accepted by merchants with less identification and scrutiny than personal checks, thereby making transactions quicker and less intrusive. Unlike personal checks, merchants generally do not believe that a payment via a debit card may be later dishonored.
• Unlike a credit card, which charges higher fees and interest rates when a cash advance is obtained, a debit card may be used to obtain cash from an ATM or a PIN-based transaction at no extra charge, other than a foreign ATM fee.

The debit card has many disadvantages as opposed to cash or credit:

• Some banks are now charging over-limit fees or non-sufficient funds fees based upon pre-authorizations, and even attempted but refused transactions by the merchant (some of which may not even be known by the client).
• Many merchants mistakenly believe that amounts owed can be "taken" from a customer's account after a debit card (or number) has been presented, without agreement as to date, payee name, and dollar and cent amount, thus causing penalty fees for overdrafts, over-the-limit, amounts not available causing further rejections or overdrafts, and rejected transactions by some banks.
• Debit cards offer lower levels of security protection than credit cards. Theft of the users PIN using skimming devices can be accomplished much easier with a PIN input than with a signature-based credit transaction.
• In many places, laws protect the consumer from fraud a lot less than with a credit card. While the holder of a credit card is legally responsible for only a minimal amount of a fraudulent transaction made with a credit card, which is often waived by the bank, the consumer may be held liable for hundreds of dollars in fraudulent debit transactions. The consumer also has a much shorter time (usually just two days) to report such fraud to the bank in order to be eligible for such a waiver with a debit card, whereas with a credit card, this time may be up to 60 days. A thief who obtains or clones a debit card along with its PIN may be able to clean out the consumer's bank account, and the consumer will have no recourse.
• In the UK and Ireland, among other countries, a consumer who purchases goods or services with a credit card can pursue the credit card issuer if the goods or services are not delivered or are unmerchantable. While they must generally exhaust the process provided by the retailer first, this is not necessary if the retailer has gone out of business. This protection is not provided when using a debit card.
• When a transaction is made using a credit card, the bank's money is being spent, and therefore, the bank has a vested interest in claiming its money where there is fraud or a dispute. The bank may fight to void the charges of a consumer who is dissatisfied with a purchase, or who has otherwise been treated unfairly by the merchant. But when a debit purchase is made, the consumer has spent his/her own money, and the bank has little if any motivation to collect the funds.
• For certain types of purchases, such as gasoline, lodging, or car rental, the bank may place a hold on funds much greater than the actual purchase for a fixed period of time. Until the hold is released, any other transactions presented to the account, including checks, may be dishonored, or may be paid at the expense of an overdraft fee if the account lacks any additional funds to pay those items.

While debit cards bearing the logo of a major credit card are accepted for virtually all transactions where an equivalent credit card is taken, a major exception is at car rental facilities. Car rental agencies require an actual credit card to be used, or at the very least, will verify the creditworthiness of the renter using a debit card. These companies will deny a rental to anyone who does not fit the requirements, and such a credit check may actually hurt one's credit score.