Debit, credit and other cards decoded

Two cousins check into the same hotel. Sofia pays with a debit card, Daniel with a credit card. Both see €460 “blocked” at check-in, but only Sofia then cannot pay for dinner. The cards look almost identical. What is different?

Whose money are you spending?

The key question for any card is whose money it spends, and when.

A debit card spends money you already have. A credit card lets you borrow up to a limit and repay over time, with interest on what you carry over.

A charge card also spends the bank’s money, but you must repay the whole month’s spending at once. A deferred-debit card works the same way, and the bank collects the total from your current account automatically. In Slovenia, many cards called “credit cards” work like this: the month’s spending is collected once a month, on a date you choose.

A prepaid card spends only what you loaded onto it, so you cannot overspend. That suits teenagers and tight budgets. Car-rental desks often refuse prepaid cards, and many are issued by e-money institutions, so the money is safeguarded, not insured. A virtual card is a card number in your app for online shopping; single-use numbers stop working after one payment.

The interest-free period

A credit card gives you a grace period. If you pay the full statement balance by the due date, you pay no interest on purchases. If you pay less, interest is charged on what remains, and many banks then charge interest from the purchase date. Any payment first covers the month’s interest; only the rest reduces your debt.

Say your statement closes on 31 March and payment is due on 25 April. A purchase on 2 March, paid in full on 25 April, gets 29 + 25 = 54 days without interest. A purchase on 30 March gets only 1 + 25 = 26 days.

Holds: money blocked, not spent

Hotels, car-rental firms and fuel pumps often block an estimated amount on your card before the final bill. This hold is not a payment, but you cannot use the blocked money. Under EU rules, a hold is allowed only if you agreed to the exact amount, and it must be released without undue delay once the final amount is known. Releasing it can still take several days.

Who is involved when you pay

Four parties take part in most card payments. You pay the shop. The shop’s bank sends the payment through a card scheme, such as Visa or Mastercard: the network and rulebook that connects banks. Your bank, which issued the card, approves the payment and pays. The scheme does not lend you anything; your bank does.

For each payment, the shop’s bank pays your bank an interchange fee. In the EU it is capped at 0.2% of the amount for consumer debit cards and 0.3% for consumer credit cards. On an €80 purchase that is at most €0.16 by debit card or €0.24 by credit card. The shop pays a larger total fee to its own bank.