LINE OF CREDIT VS CREDIT CARD: Definition And Differences Explained

LINE OF CREDIT VS CREDIT CARD: Definition And Differences Explained
LINE OF CREDIT VS CREDIT CARD: Definition And Differences Explained

The main difference between line of credit vs credit card is that a line of credit allows you to borrow money on a revolving credit line (instead of the one-time amount you will receive for the loan), while a credit card allows you to make purchases that you then repay.

Both credit cards and lines of credit can be secured or unsecured, depending on your credit rating and qualifications.  Credit cards can offer reward programs that credit lines do not have.

Credit cards usually have higher interest rates as well as a commission on cash advances, and credit lines offer a fixed interest rate.

What Is Line Of Credit?

A line of credit is a loan from your financial institution with a pre-set limit.  Options include a business or personal line of credit.  In any case, you can use a credit line to repay the loan.  This credit is considered renewable, which means you can borrow from it as needed and repay it.

Unlike an instalment loan, you don’t really have to pay anything until you take advantage.  Once you receive your LOC, you are also charged interest.  Your minimum payment requires interest and principal.

How Do Line Of Credits Work?

Credit lines are usually used for large purchases.  LOC can be useful for large projects.  Generally, you will not use a line of credit for a large purchase, such as a car or a house.  Instead, you will take out a mortgage loan, such as a mortgage or instalment loan.

They can help if the seller does not accept credit cards.  Use LOC to make a deposit for a wedding or other purchase that requires a large amount of money.

What is Credit Card?

Credit cards offer you a line of credit that can be used for purchases, balance transfers and / or cash advances and requires repayment of the loan in the future.  Using a credit card, you will need to make at least the minimum monthly payment before the balance date. 

If the entire balance of purchases is not repaid, interest will be accrued.  Interest will be accrued from the date of the transaction to transfer the balance and / or advances in cash.

How Do Credit Cards Work?

Credit cards are usually the best choice for small purchases, but usually only if you can pay the balance monthly.  Unlike lines of credit, you have a grace period (usually 30 days) to repay your card without accruing interest.  Please note that this grace period only applies to purchases. 

Interest is still accrued on cash advances immediately.  Interest rates on credit cards are usually much higher than on a credit line.

Many credit cards offer reward programs that are a smart way to increase your budget (ie get points for products, goods or travel).  However, do not make it a habit to use the card just to get bonus points.  This has the opposite effect in a hurry, when you start accruing interest just to get a “reward”.

Credit cards are often more convenient and widely accepted, so how and where you plan to use this credit product should also influence your decision.


Similarities Between Line Of Credit Vs Credit Card

Credit line and credit card are very similar types of revolving credit.  In both cases, you are allowed to borrow up to a certain amount, but you do not need to borrow money immediately after you are approved. 

You can choose when to borrow and how much, up to the account limit.  You only pay interest on the amount you borrow, and you can borrow again and again until you owe more than the limit.

Differences Line Of Credit Vs Credit Card


Although the terms depend on the lender, the annual cost of the credit line is often lower than the annual cost of the credit card.  And the credit limit for a credit line may be higher than for a credit card.  These benefits can make credit lines better suited for large purchases that you are going to repay over time.


Personal lines of credit tend to have lower interest rates than credit cards, and borrowers may be able to get even lower rates by having an account or using collateral.

With credit cards, interest savings require a little more planning.  You can pay the full balance monthly or use a card with a promotional interest rate of 0%.

Annual fees are quite common for credit cards, especially cards that offer the best rewards and benefits.  On the other hand, personal credit lines do not often charge any current or transaction fees other than interest.


It is easier to find and get a credit card, as it is offered by most banks and credit unions.  A limited number of banks offer credit lines for personal use, especially unsecured credit lines.

Banks that offer lines of credit usually require you to have a check, savings or investment account to apply for a line of credit.  The line of credit products may be limited to states where banks have physical branches, which may make it difficult to access them.

Personal Line of Credit Vs Credit Card

A credit line can be useful if your income is sporadic.  Let’s say, for example, you’re waiting for a payment from a customer and your monthly bills have arrived.  A personal credit line could provide missing funds without charging an advance. 

You can make a purchase or borrow money and return it as soon as the customer’s payment is made.  Do you need a car overhaul?  Are you planning a wedding?  A personal credit line allows you to track and pay this debt separately, possibly at a favorable interest rate.

Business Line Of Credit Vs Credit Card

LOCs are usually approved by the credit institution, and perhaps the most significant feature is their flexibility. 

Credit lines have different maturities and parameters to only advance and then reconcile with the sale of short-term assets or renew to allow the business to constantly repay and repay the advance on the line during its cash cycle.  They may have fixed or variable interest rates, which are usually lower than credit cards.

Credit cards do not have a maturity, but require a monthly payment, charging significant penalties for late or partial payments.  However, the company will not accrue interest if it pays the balance in full each month before the due date.  By its nature, a credit card is renewable, which allows a business to grow fully if credit is available, and to repay it on a monthly basis.

Differences Between Business Line Of Credit Vs Credit Card

Under the credit line, the company will start accruing interest on the day of the first advance and as long as there is a balance on the line. 

Credit lines may require regular scheduled payments, or all principal and accrued interest may be repaid.  Credit lines can be secured or unsecured, and approved commitments depend on the collateral pledged. 

Depending on the size of the credit line, the financial institution may require financial statements and profit and loss statements of the enterprise as well as the owners.  This makes it easier to determine the level of risk and set the interest rate.

ALSO READ: WHAT IS BOND PAPER: Meaning, Characteristics & Advantages

Business Line Of Credit Vs Business Credit Card

Credit cards for business are usually unsecured and have a higher interest rate than the credit line.  The credit rating of a business owner determines the amount of liabilities or credit limit. 

Finally, credit card companies do not usually require financial statements or income statements as a condition of approval. 

The most common advantage of credit cards over traditional lines of credit is bonus points.  Given the scope of some businesses, these product rewards can lead to material value.

Home Equity Line Of Credit Vs Credit Card

As the name implies, HELOC is a line of credit similar to the credit cards in your wallet.  However, there are important differences between them.  Understanding these separation points can help you determine if HELOC or a credit card is appropriate for any particular situation.

In some cases, HELOC is more profitable than using credit cards – for example, when interest can be written off.  In other cases, a credit card may be the best.

Similarities Between Equity Line Of Credit Vs Credit Card

What they have in common is that closing a credit line can affect your credit rating.  The length of your credit history is a factor in determining your credit rating, and if you close your account, it can affect the overall age of your credit, which can lower your credit rating. 

However, this result is not a guarantee; and in any case, HELOC is intended to be completed at some point.  The best way to protect you from downgrading is to keep your credit history at an ideal level.  This may mean that you choose not to close other credit accounts when your HELOC expires.

 Revolving Line Of Credit Vs Credit Card

A revolving line of credit remains open until the lender or borrower closes the account.  A non-revolving credit line, on the other hand, is a one-time agreement, and when the credit line is repaid, the lender closes the account.

When a lender issues a revolving loan, it assigns a specific credit limit to the borrower.  This limit depends on the credit rating, income and credit history of the client.  When the account is opened, the borrower can use and reuse it at its discretion. 

The account remains open until the lender or borrower decides to close it.  When payments are made to a revolving credit account, these funds become available for the loan again.  The credit limit can be reused if you do not exceed the credit limit.

Line Of Credit Vs Credit Card FAQs

Why get a credit card?

Some credit cards offer some line of credit benefits without having to open a new account.  For example, your card may offer low-interest balance transfers that are even cheaper than a personal credit line.

How Does Home Equity Line Of Credit Work?

HELOC offers homeowners the opportunity to use this capital for cash.  Whether you need money for a home project, a new kitchen appliance, tuition fees, emergency personal expenses or to pay off credit card debt, a home equity line of credit can help you meet your financial needs.

Why Do Credit Cards Have Higher Interest Rates Than HELOC?

Credit cards often have higher interest rates than HELOC.  This is because HELOC is secured debt and credit cards are unsecured debt.  Neither HELOC nor credit card is free money, as each has its own costs.  Some HELOCs, for example, are a bit like mortgages because they have closing costs.  Many credit cards have an annual fee, but not all.


Credit cards and credit lines have many characteristics.  Business owners may be wondering what makes them different and whether it’s better to shop with one or the other.

In fact, there are several key differences that can help businesses determine when to use one or the other to make purchases.  These differences are not easy to understand from the beginning.  That’s why we wrote this article to help you understand the differences between a credit line and a credit card.

REFERENCES – Line of credit vs credit card: Which one should I use? – Difference between Business Credit Card and Line of Credit

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