Archive for August 2023

Line of Credit vs Credit Card: What’s the Difference?

A line of credit and a credit card can both be great options for short-term financing. However, they’re not created equal. Check out a few key differences to help you decide which is best for your needs. 

A line of credit allows you to borrow money repeatedly. While all credit cards are connected to a line of credit, you can have a line of credit that is not associated with a credit card.

A credit card comes with a predetermined credit limit and requires minimum monthly payments on the money borrowed. If you carry a balance month to month, you may be subject to higher interest rates.   

A line of credit allows you to borrow up to a certain limit and repay with interest only on the amount you borrow. It usually offers a higher credit limit and a lower interest rate than a credit card. If you secure your line of credit against your home, with a HELOC (Home Equity Line of Credit), you will typically get a lower rate than a personal line of credit.

Below are basic differences between the two:

Line of Credit:

  • Provides a revolving credit limit 
  • Borrow up to the approved limit and repay  
  • Gives you the freedom to borrow and repay on your own terms, providing greater flexibility in managing your finances 
  • Generally offers higher credit limit compared to credit cards, providing greater access to funds for larger expenses or ongoing capital needs 

Credit Card:

  • Comes with a predetermined credit limit. 
  • Requires minimum monthly payments, and if you carry a balance, you may be subject to higher interest rates 
  • Can be used for day-to-day expenses, such as office supplies, travel expenses, and online purchases. 

To put it simply, a line of credit may make more sense for ongoing or larger expenses, while credit cards are convenient for day-to-day expenses or regular purchases, and offer many perks, including points you can use for cash back.