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Line of Credit vs. Credit Card: Know the Difference?

Line of Credit vs. Credit Card: Know the Difference?

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 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.

An Introduction to a Line of Credit

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

Why Should You Choose a Line of Credit?

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

An Overview of Credit Card

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.

Top Reasons to Choose Credit Cards

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.

Someone wishing to opt for a credit card must meet the following eligibility criteria:

  • The eligibility criteria might include aspects like the following:
  • Your CIBIL score
  • Your pay slip or other evidence of income
  • Total home income
  • Employment history
  • Other documents like PAN card and Aadhaar card

Line Of Credit vs Credit Card – A Few Differentiating Parameters

The following list includes the differences between a line of credit vs credit card:

Best Time to Use

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

Expenses & How to Access or Use Funds

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:

  • Cheque
  • ATM
  • Net banking

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:

  • Online banking
  • Convenience cheque
  • In-person and online transactions
  • ATM


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.

Final Verdict – Selecting Credit Line vs Credit Card

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 CIBIL 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 may also read this: Credit Utilization Ratio

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