Line of Credit Vs Credit Card - What’s The Difference?

Line of credit and credit card are two credit products that could serve as a perfect solution if you’re facing a cash crunch. In this blog, we’ll discuss their meaning, usage, differences and how they work.

What is a Line of Credit Vs Credit Card?

Let’s understand more about line of credit and credit card with the help of this table –

What is a Line of Credit?

A line of credit is like a financial safety net. It helps you deal with planned and unplanned money needs. Under this, banks and other lenders give you a credit limit. You can take the amount you need from your line of credit and pay back in convenient EMIs.

How Does a Line of Credit Work?

To apply for a line of credit, you have to submit your basic details to the lender. Based on this information, you get a credit limit. Your credit limit offer is based on a number of factors like your credit score, repayment history and monthly income. You can take personal loans from your line of credit and repay in EMIs. When you make an EMI payment, your line of credit is replenished with the repaid amount.

What is a Credit Card?

A credit card is a plastic or metal card offered by banks and credit card companies. Individuals can use It to purchase products and services on credit. They get an interest-free period on the amount spent through their credit card.

Also Read: Ways to increase your Credit Limit

How Does a Credit Card Work?

When you apply for a card, banks give you a limit based on your credit profile. This limit is the highest amount you can spend on that card. When the billing cycle ends, you get a statement which shows your current balance and all the purchases you made with that card. If you do not pay off the full outstanding amount each month, the credit limit card provider will charge interest on the outstanding amount.

Pros & Cons – Line of Credit Vs Credit Card

Now that you know what is a line of credit vs credit card, let’s look at their pros and cons –

Interest Rate

The difference between credit card and line of credit when it comes to interest rates is that you need to pay a fixed interest on the amount utilised from your credit line. Whereas, credit cards give you an interest-free period, post which they charge interest on the outstanding amount.

Rewards

Credit card users enjoy a host of rewards like cashback, discounts and loyalty points. There are no such reward programs for using a line of credit.

Convenience

Both credit card and credit line offers different types of conveniences. If you need cash urgently, a line of credit will be of great help to you. If you want to make cashless payments or enjoy discounts and cashbacks, a credit card should be your go-to credit instrument.

When to Use a Line of Credit vs Credit Card

Whether to use a credit line or a credit card depends on your financial need. You should go for a line of credit when you need money for paying off outstanding Credit Card bills, debt consolidation loan and other planned and emergency expenses.

You should use credit cards for making day-to-day purchases, enjoying discounts on shopping and earning cashbacks.

Conclusion

Now you know the difference between credit card and line of credit. Both are immensely useful financial instruments if used responsibly and in the right place.

A credit line serves as a financial cushion from which you can borrow money anytime, anywhere and a credit card is a convenient way to make payments on credit and save money through discounts and cashback.