However, it’s important to recognise that not all plastic money is created equal, and using a debit card for shopping may not always be the wisest choice.
Here are five reasons why relying solely on a debit card for your shopping needs may have its drawbacks, ranging from varying levels of fraud protection to limited credit-building potential.
Varying Levels Of Fraud Protection: Debit cards are directly linked to your bank account, making them susceptible to fraud. While many banks provide fraud protection services, the level of protection can vary. It’s essential to thoroughly understand the terms and conditions offered by your bank to ensure you have adequate coverage. Some banks offer zero liability protection, where any unauthorised transactions are fully refunded, while others may have limited liability clauses that place the burden of proof on the cardholder.
Says Shalini Dhawan, co-founder – Plan Ahead Wealth Advisors, a Sebi-registered investment advisor, “Make sure to acquaint yourself with your bank’s fraud protection policies before using a debit card for shopping to ensure that you have the appropriate safeguards in place.”
Limited Potential For Building Credit: Building a strong credit history is crucial for accessing loans and other financial credit. While credit cards play a significant role in establishing creditworthiness, debit card usage does not contribute to your credit score. If you rely solely on a debit card for your shopping needs, you miss out on the opportunity to demonstrate responsible credit management, which can impact your future financial endeavours.
Says Ashish Bhave, money and life freedom coach, CEO, WPH Services, a business success mind-set coaching, training, and mentoring company, “Opting for a credit card and responsibly managing it, including making timely payments, can be a strategic choice if your goal is to build or enhance your credit score.”
Insufficient Purchase Protection: Credit cards often provide additional benefits, such as purchase protection and extended warranties.
Unfortunately, debit cards in India generally do not offer the same level of protection. If you encounter issues with a purchase, such as receiving a defective product or you are a victim of fraud, resolving the matter can be challenging with a debit card. You may face difficulties in disputing charges or obtaining refunds from unscrupulous sellers.
According to experts, in the absence of the purchase protection provided by credit cards, your options for addressing unsatisfactory purchases or dealing with fraudulent merchants may be limited.
Cash Flow Constraints: Using a debit card can have an immediate impact on your available cash flow. In India, preauthorisation holds are often placed on debit cards for certain transactions, such as hotel bookings or car rentals. These holds tie up your funds, which can be an inconvenience if you need to cover other essential expenses. Credit cards, on the other hand, provide a higher credit limit, allowing you to make such preauthorised payments without affecting your cash flow.
Limited Recourse For Disputes: Resolving disputes with merchants can be a challenging process when using a debit card. While credit cardholders can, however, leverage the chargeback mechanism to request refunds for problematic purchases, debit cardholders may have a more arduous journey. The resolution process often relies on the cooperation of the merchant and the bank, and disputes may take longer to resolve.
According to experts, when there is a possibility of disputes arising, utilising a credit card provides enhanced protection and a more streamlined resolution process compared to relying solely on a debit card. While debit cards offer convenience, it is important to understand their limitations when it comes to shopping. With varying levels of fraud protection and limited potential for credit-building, relying solely on a debit card may not be the wisest choice. Exploring alternative payment methods, such as credit cards, can provide added security and benefits that are worth considering to protect your financial interests in the long return.