How debit, credit and ‘pay later’ cards differ from each other

Adhil Shetty, CEO, BankBazar.com, says, “While debit cards allow you to access your existing funds in a savings bank account, credit cards allow you to access credit. Credit line cards or ‘pay later’ cards are those that allow you to make purchases and then split the bill in three or more installments."

For instance, slice ‘pay later’ cards allow you to split your monthly spending equally over three months with no additional charges. On the other hand, Uni ‘pay later’ cards go a step beyond the transaction level. In the case of Uni, you can choose the transactions for which you want to pay in full and pay the remaining over the next three months. The ‘pay later’ cards issued by fintech firms often focus on millennials who are digitally active but do not have a credit history. The fintech firms give these cards to them with a credit limit as low as ₹2,000. However, the card’s limit increases dynamically over a period as they spend more and make repayments of the bill on time.

 

Credit vs ‘pay later’ cards

‘Pay later’ cards are an emerging form of small-ticket loans bundled in a card, targeted at millennials and Gen-Z customers. In contrast, credit card issuers have specific pre-defined eligibility criteria. This way, consumers without any credit history or those with very meagre earnings can get a ‘pay later’ card. However, getting a credit card is dependent on the individual’s creditworthiness, repayment behaviour and stability of income.

Raj Khosla, founder and MD, MyMoneyMantra.com, says the credit limit extended on a ‘pay later’ card is typically relatively less than what is offered on a credit card. On a ‘pay later’ card, credit limit starts from ₹2,000 and can go up to a maximum of ₹10 lakh, while credit limits on a credit card typically begin from ₹20,000. There is no upper ceiling on credit card limits as the lender can increase your credit limit as per your usage, earnings and frequency of spending.

“As of now, ‘pay later’ cards only provide the facility of splitting the transaction amount into three equal installments, while credit cards offer longer equated monthly installments (EMIs) facility that can stretch up to 36 months," added Khosla.

Further, in ‘pay later’ cards, you don’t have to pay revolving interest, i.e., there is no interest fee applied on new purchases while you make partial bill repayment. However, in the case of credit cards, if you make late or partial payments, interest is charged from the date of the transaction. Sachin Vasudeva, associate director and head, credit cards, Paisbaazaar.com, says the biggest drawback of a credit card is the high-interest rate on revolving credit. This means even a few missed payments can push you into a debt spiral. “The interest rate-credit card finance charges on revolving credit are significantly high at 30%-45% per annum whereas ‘pay later’ cards charge 20%-30% (non-revolving) in case of non-payment," says Vasudeva.

Yet, the benefits and rewards offered on a credit card are generally higher and more diverse than the benefits available on a ‘pay later’ card. ‘Pay later’ cards provide around 1% cashback on timely bill payment; credit cards offer several other benefits such as cashback, reward points, discounts, and air miles. says Khosla, “Users can choose the type of credit card according to their spend patterns to avail maximum benefits, whereas the advantages in ‘pay later’ cards are similar across the board."

Debit vs Credit/Pay later cards

Debit cards, credit cards and ‘pay later’ cards are all different types of payment options. “The comparison of debit cards with credit or ‘pay later’ cards is outrightly unfair as the former represents your cash in bank accounts, while credit and pay-later cards are a form of unsecured loan that is bundled into a plastic (card)." Moreover, after transactions made with credit and ‘pay later’ cards, you remain obligated to honour bills arising in the future. In contrast, payments through debit cards mean you settle the transaction immediately upon spending.

Vasudeva says, “Since debit cards are directly linked to your savings or current account, it is better to use them for small expenses and ATM withdrawals—typically those you can manage to pay upfront without exhausting your savings. Debit cards allow you to withdraw cash from ATMs free of charge. But withdrawing cash using a credit or ‘pay later’ card will attract hefty interest rate charges as those transactions are treated as cash advances."

Mint take

You can use these cards at online and offline stores, ATMs and point of sale (PoS) terminals. The benefits and rewards associated with these cards are purely subjective to the nature of the transaction. To get the maximum benefits, you should use these cards interchangeably as per the nature of the transactions you are doing.