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Sometimes, borrowing might be a great financial strategy to pay your debts on time or acquire something larger. Whether you are planning for an international study, initiating a business, or repaying earlier loans, borrowing may sound easy. However, there's always a cost factor associated with any type of borrowing, i.e. the personal loan interest rate. So, what if you are given an opportunity to change the interest based on your repayment time? That's where the discussion of line of credit vs. credit card comes into being. Assuming you are utterly confused between the two, this post serves as your handy guide.
A line of credit and a credit card allow borrowers to get money within the pre-set limit. In both types, you get charged interest based on how quickly you can repay your loan. Let's find out more about line of credit vs. credit card in this post.
Technically, a standard credit card functions as a line of credit. However, you should realize that a personal line of credit is a distinct financial product. Both allow you to access revolving funds to manage your spending. They just operate under different rules. For instance, you can hold a line of credit that does not even come with a physical card.Think of "line of credit" as a broad category. It covers various lending options where you withdraw cash as needed and pay it back with interest. Credit cards and personal lines of credit fall into this group. You might also encounter HELOCs (secured by your home) or overdraft lines that protect your bank account from bouncing payments. Understanding the difference between line of credit and credit card helps you pick the right tool for your wallet.
A line of credit lets borrowers get the amount through a check-book or card. You can also get the cash amount from an ATM or bank. You may require collateral when opting for a line of credit. This allows borrowers to borrow money repeatedly. That means you can borrow the amount up to a specific limit. Then, you need to repay the amount.
Borrowers only need to understand that you can withdraw money if you don't cross your credit limit. You also need to pay interest on the debt.
A line of credit comprises a draw period and a repayment period. The draw period is the borrower's time limit to pay the loan monthly. On the contrary, the repayment period is when you cannot use the credit. You only need to pay the outstanding balance monthly during this time.
You may also read this: How to choose right credit card
Before understanding the parameters differentiating a line of credit vs credit card, let's understand what a line of credit is. The credit line can be used with utmost flexibility.
Compared to conventional loans with repayment schedules, a line of credit offers borrowers the freedom to set a pre-approved limit. Even the tenure is flexible. In addition, it does not include collateral. So, it's less burdensome for people to secure funding.
Another impressive benefit is that you don't have to perform pesky paperwork or visit the financial institute. You may apply for the credit line from the comfort of your house. The interest is not charged on the credit limit but on the amount of the loan you borrow.
Lenders would not impose penalties or charge additional expenses once you decide to repay the balance in full and close it before the agreed-upon tenure.
The only thing a borrower needs to be concerned about is that the repayments are minimal and done monthly, depending on your outstanding balance.
You may also read this: Best credit cards in India
| Pros | Cons |
|---|---|
| You only borrow what is necessary and pay interest on that specific amount. | Floating interest rates make your future monthly payments harder to estimate. |
| Usually offers a lower APR compared to most credit cards. | Rates can be higher than what you would find with fixed-rate personal loans. |
| No need for collateral if you choose an unsecured option. | No interest-free grace period as charges start the moment you take the cash. |
| You generally do not pay extra fees just to access your funds. | Continuous access to cash may tempt you to spend more than you planned. |
| Excellent for managing short-term or temporary gaps in your cash flow. | Not a sustainable solution for permanent or long-term financial deficits. |
| You face very few limits on how you choose to spend the borrowed money. | Carrying a high balance or missing a payment may hurt your credit score. |
| It improves your credit mix and helps your utilization ratio (if kept low). |
Your bank might provide special cheques to let you use your funds. You can also move money directly into your current account via an app or a quick phone call. Some people set up their line of credit to automatically cover account overdrafts. It is a flexible way to keep your finances moving.
These accounts are either secured or unsecured. A HELOC uses your home as security (which is a bit risky if you cannot pay). These often have rates that change with the market. On the other hand, a personal line of credit is usually unsecured. You might need an existing relationship with the bank to get one. Once you spend the money, you get a monthly bill and must pay at least the minimum amount.
Opening this type of account shifts your credit profile in several ways. You should keep an eye on these factors:
It works when you have a significant expense coming up. It is best for emergencies or projects where you do not know what will be the final cost.
A line of credit offers more freedom than a standard loan. It often provides better terms than a credit card if you plan to carry a balance for a few months. (It’s just more cost-effective for bigger, lingering debts).
Credit cards let you pay for items and services you select online or offline. It's a financial tool designed for personal and business usage. It allows you to draw on the line of credit and make purchases. A borrower can repay the amount before the last date.
After every billing cycle, the cardholder gets an account statement. You can consider the grace period, which is the interest charged to pay the balance before the due date.
Suppose you pay less than the balance. In such circumstances, you will lose your grace period, and the balance will accrue interest. If you are unable to pay the amount by the due date, you will get late fines. Let's learn more to evaluate the differences between a line of credit and a credit card.
With credit cards, you can monitor and manage your expenses. You get in-depth information on your transactions. That makes it simpler for you to track your spending habits. Credit cards are a perfect way to keep business and personal expenses separate.
You can set the spending limit according to your requirements. Additionally, it comes with various cashback rewards and points. You can use and redeem them as travel rewards, shopping discounts, miles, lounge access at the airport, and more.
| Pros | Cons |
|---|---|
| The application process is usually very fast and straightforward. | Often carries a much higher APR than other types of borrowing. |
| You can earn points, miles, or cashback on your daily shopping. | Many cards demand an annual fee even if you never use the limit. |
| It is often easier to qualify for a card than a formal line of credit. | The ease of swiping makes it very simple to overspend your budget. |
| Extremely convenient for your small, everyday purchases. | Higher risk of fraud if your card details are stolen or skimmed. |
| A grace period lets you avoid interest entirely if you pay in full. | Withdrawing cash (cash advances) usually costs a fortune in fees. |
| Some cards give you 0% interest for the first few months. | High balances or late payments will quickly damage your credit score. |
| Helps your credit mix and increases your total available credit limit. |
Someone wishing to opt for a credit card must meet the following personal loan eligibility criteria and require the following personal loan documents:
You receive a statement at the end of every billing cycle. Most cards have a grace period. This means if you pay the full statement balance by the due date, the bank charges you zero interest on purchases. If you carry even a small part of that balance over, the interest starts piling up immediately.
You must make the minimum payment to avoid late penalties. If you skip a payment, the bank tells the credit bureaus. This will likely tank your score. Many people use cards specifically for the perks. You can get cashback or travel points that you can swap for flights or gift vouchers.
A credit card changes your score in much the same way a line of credit does. It adds to your revolving credit. If you have never had a card before, it actually helps your credit mix. Just be ready for a small, temporary dip when the lender performs a hard search during your application.
Staying on top of your monthly bills is the best way to build a strong profile. Paying in full every month shows you are a responsible borrower. It keeps you out of the debt trap and ensures you do not waste money on high interest charges.
Cards are great for when you do not want to carry a wad of cash. Use them for your normal weekly shop or fuel. It is a smart move as long as you can clear the balance every single month.
The fraud protection on cards is usually superior to what you get with a debit card or cash. It gives you that extra peace of mind.
The following list includes the differences between a line of credit vs credit card:
Credit cards offer a convenient payment method without the need for cash. Using them for daily expenses is beneficial, provided you can pay the bill in full every month. That will avoid accruing interest or unmanageable debt.
Opting for a credit card might be a significant decision, especially when you plan to spend the amount on grocery items, dining, etc.
However, you may consider a credit card with a 0% APR on purchases if you have a purchasing plan. The 0% APR credit card provides zero interest for a certain period (6–21 months). A credit card holder does not incur interest on their new purchases during this time.
Moreover, credit cards offer fraud protection, unlike other payment methods. These reasons make credit cards preferable for individuals, particularly frequent online shoppers and flyers.
On the other hand, a personal line of credit might be effective for people who plan for large purchases. If you wish to pay emergency bills, a line of credit is a safer bet. Whether massive home repairs or excessively high medical treatments, you can cover the expense using this method.
You may also read this: Credit card settlement process
In a line of credit, a registration fee is included. There might be annual or monthly fees, too. For the line of credit, you can use or access the fund through the following:
On the other hand, credit cardholders must pay the annual fee, foreign exchange expenses, late payments, and cash advance fees. For credit cards, you can access the fund in various ways, as mentioned below:
Another difference between a credit line and a credit card lies in their purpose. A credit card is primarily used for making transactions digitally. You can also use it to pay at any offline store, including shopping malls, grocery shops, etc.
However, a line of credit is used for larger expenses such as home improvements, massive medical bills, purchasing inventory for a business, etc.
| Feature | Personal Line of Credit (LOC) | Credit Card |
|---|---|---|
| Interest Rate | Usually variable and lower. | Usually variable and higher. |
| Rewards | No perks or points. | Often includes cashback or miles. |
| Credit Limit | Typically offers a higher limit. | Often has a more modest limit. |
| Access | Cheques, transfers, or cash. | Cards, online, or cash advances. |
| Requirements | Requires a solid credit check. | Requires a solid credit check. |
You may also read this: Credit Utilization Ratio
If these options do not feel right, you can look at different ways to manage your money.
For someone with a bad credit history, opting for a personal line of credit seems challenging. On the other hand, credit card issuers may face rejections if they have a poor credit report.
Deciding between a line of credit and a credit card can be challenging. Despite being excellent financial solutions, both of them have features that set them apart from one another.
For instance, credit cards are excellent for those who keep track of their regular expenses and use rewards accordingly. On the contrary, a line of credit might be preferable for larger borrowings. Note that it might come with a lower interest rate.
Ultimately, the choice between a line of credit vs credit card is yours based on the type of loan term you select. Your decision also depends on how you wish to repay your borrowed amount. However, one thing you should consider before selecting either of these two is comparing the interest rates and fees.
You certainly can. Using a line of credit to clear high-interest card debt is a smart move. You essentially swap expensive debt for a cheaper alternative. This helps you save on interest and simplifies your monthly outgoings. You just draw the funds from your credit line and pay the card issuer directly. It's an effective way to manage your budget better.
A credit card is usually better for your daily spending. You get convenience at the checkout and potential rewards or cashback. Most cards provide an interest-free window if you pay the statement in full. A line of credit is less convenient for buying a coffee or a loaf of bread. Keep the credit line for bigger, unexpected costs that require more time to repay.
You should prioritise the debt with the highest interest rate. This is almost always your credit card. High APRs make card debt grow very fast if you leave it sitting. Clear the card balance to stop the interest from compounding. Once the expensive debt is gone, you can focus on your line of credit. It’s the most logical way to protect your wallet.
Yes, it is very helpful. Having an open but unused line of credit lowers your credit utilisation ratio. This can actually boost your credit score. It also gives you instant access to funds during an emergency without needing to apply for a new loan. You don't pay interest on the unused portion, so it stays there as a free financial safety net for you.
You can, but the costs differ wildly. Withdrawing cash from a credit card is called a cash advance and it's very expensive. You usually pay high fees and immediate interest. With a line of credit, moving money to your bank account is the standard way to use it. You won't face those punishing "cash advance" rates, making the credit line much friendlier for cash needs.
Not necessarily. Your limits depend on your income and credit history. However, lines of credit often provide higher limits than standard credit cards. This is because they are intended for larger expenses like home improvements or debt consolidation. You might have a £2,000 limit on your card but a £10,000 limit on your credit line. Each serves a different scale of financial need.
A revolving line of credit works just like a card. As you pay back what you borrowed, that credit becomes available to spend again. The main comparison is the delivery method. A card is a physical tool for shops. A revolving line is a digital fund you tap into whenever you need. Both give you repeated access to funds without needing a new application every time.
Your line of credit typically stays open as long as you meet the lender's terms. Some have an expiration date or a "draw period" where you can take money out. After that, you might enter a repayment-only phase. At lendingplate, we focus on keeping things simple. If you manage your account well and make timely payments, your access to credit remains a reliable resource for you.
Both impact your profile through payment history and utilisation. If you pay on time, your score goes up. If you max out your limits, your score might drop. Credit cards are often seen as short-term liquidity. Lines of credit show you can handle larger, more structured debt. Using both responsibly proves to lenders that you are a versatile borrower who understands different financial products.
You don't always need a perfect score. While a higher score gets you better rates, many lenders look at your overall affordability. They check your income and existing debts to see if you can handle the repayments. We look at more than just a number at lendingplate. You should focus on showing a steady income and a history of being responsible with your current bills.
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Unifinz Capital India Limited is a Non Banking Finance Company (NBFC) registered with the Reserve Bank of India (RBI). lendingplate is the brand name under which the company conducts its lending operations and specialises in meeting customer’s instant financial needs.
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