Cheques
A Chequeis a document/instrument (usually a piece of paper) that orders a payment of money from a bank account. Technically, a cheque is a negotiable instrument instructing a financial institution to pay a specific amount of a specific currency from a specified transactional account held in the drawer’s name with that institution. Both the drawer and payee may be natural persons or legal entities.
The person writing the cheque, the drawer, usually has a current account where their money was previously deposited. The drawer writes the various details including the money amount, date, and a payee on the cheque, and signs it, ordering their bank, known as the drawee, to pay that person or company the amount of money stated. Cheques are a type of bill of exchange and were developed as a way to make payments without the need to carry large amounts of gold and silver
Credit Cards
Think of credit as borrowed money. This money is made available to you, but it must be repaid within an agreed amount of time. Credit cards provide a line of revolving credit. Credit cards eliminate the need for carrying cash or checks. A typical plastic card includes the customer’s name and a series of numbers that represent the applicable network, bank and account. The numbers in aggregate are referred to as the “account number” or “card number”. The front also features the card’s expiration date and the issuer’s logo.
The back of the card has a horizontal magnetic strip and a signature box that must be signed by the card holder. The account number and a three- to four-digit card identification number or security number are often listed as well.
Credit cards enable you to reserve a hotel room, airline tickets and concert tickets, replace lost or stolen items in person, over the phone or through email. They offer convenience and some special perks for using them, such as travel insurance and gift certificates. They can be used almost everywhere.
Types Of Credit Cards
Credit card products come in a wide assortment these days. Some credit card programs will ease their terms and conditions and offer perks for people with stellar credit, such as travel insurance, concierge service and free entertainment. Other credit card program may help a person re-establish their credit.
Not all cards are for everyone. The ability to get a credit card will depend on whether you qualify. This is determined by whether you have a history of establishing credit and your ability to pay bills on time.
Here are the most common types of credit cards:
-Standard Credit Cards
-Reward Cards
-Secured Credit Cards
Credit Cards: Pros and Cons
Pros
-You can use them practically everywhere, especially overseas.
-They can boost your purchasing power because they can be used to buy goods and services over the phone, through the mail and online.
-They provide financial backup in the event of an emergency, such as an unexpected healthcare cost, job loss or auto repair.
-They allow you to purchase items and pay them off in monthly installments. They offer discounts at stores and rewards. For instance, when you make purchases using the credit card you can collect points; these points accumulate and can be used to get free items, such as airline tickets.
-Some cards may offer cash back as an incentive to use the card.
-They can help build your credit history.
-They keep a record of your expenses, helping you to monitor your financial activities.
-They help raise your credit score, when you pay balances down by the due date. This improved credit history paves the way for lower rates borrowing rates on other loans, including a mortgage.
-Credit cards allow you the right to dispute billing errors and defective merchandise.
-They allow you withhold payments.
Cons
-Credit cards can have their disadvantages, though, especially when they’re used in an unwise manner.
-Some consumers feel compelled to spend more money than they have.
-Consumers may continuously roll over a balance for several months.
-When you default on credit card payments, you are charged with late fees and interest, increasing your debt load.
-Carrying a large amount of credit cards also isn’t too favorable in the eyes of lenders.
-Acquiring too much credit card debt can ruin your credit score.
-Studies have indicated credit card debt as a significant factor in consumer bankruptcies.
-Credit card fraud is a possibility.
Debit Cards
A debit card is a plastic card that provides the cardholder electronic access to his or her bank account/s at a financial institution. Some cards have a stored value with which a payment is made, while most relay a message to the cardholder’s bank to withdraw funds from a designated account in favor of the payee’s designated bank account. The card can be used as an alternative payment method to cash when making purchases
In many countries the use of debit cards has become so widespread that their volume of use has overtaken the cheque and, in some instances, cash transactions. Like credit cards, debit cards are used widely for telephone and Internet purchases.
However, unlike credit cards, the funds paid using a debit card are transferred immediately from the bearer’s bank account, instead of having the bearer pay back the money at a later date.
Debit cards usually also allow for instant withdrawal of cash, acting as the ATM card for withdrawing cash and as a check guarantee card. Merchants may also offer cashback facilities to customers, where a customer can withdraw cash along with their purchase.
The widespread use of debit and check cards have revealed numerous advantages and disadvantages to the consumer and retailer alike.
Advantages of debit cards
-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. For example, legislation often prevents minors from taking out debt, which includes the use of a credit card, but not online debit card transactions.
-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.
Disadvantages of debit cards
-Use of a debit card is not usually limited to the existing funds in the account to which it is linked, most banks allow a certain threshold over the available bank balance which can cause overdraft fees if the user’s transaction does not reflect available balance.
-Many 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 be unknown until later discovery by account holder).
-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, amount and currency, thus causing penalty fees for overdrafts, over-the-limit, amounts not available causing further rejections or overdrafts, and rejected transactions by some banks.