Line Of Credit Vs Credit Card – What’s The Difference

credit card important information

A line of credit and a credit card are very similar types of revolving credit. With both, you’re approved to borrow up to a certain amount, but you don’t have to borrow any money immediately after you’re approved. You can choose when to borrow and how much, up to the account limit. You pay interest only on the amount you borrow and you can borrow again and again, as long as you don’t owe more than the limit.

However, there are some important differences between a line of credit and a credit card. Here’s what you need to know when it comes to a line of credit vs. a credit card.

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Line of credit vs. credit card: What’s the difference?

One of the most notable differences between the two is that while a credit card is connected to and allows you to access a line of credit, it’s possible to open a line of credit that doesn’t have a card associated with it. Basically, all credit cards are lines of credit, but not all lines of credit are credit cards.

Credit terms and limits

While terms vary by lender, the APR on a line of credit is often lower than the APR for credit cards. And the credit limit for a line of credit may be higher than for a credit card. These advantages may make credit lines better suited to large purchases that you intend to pay off over time.

Access and rewards

Credit cards provide a convenient way to make purchases on an everyday basis. They often give you a grace period during which you can avoid paying interest, a feature that isn’t available for lines of credit. And many credit cards offer cash back or other rewards for spending, which credit lines do not.

Application requirements

Applying for a credit card requires you to provide accurate information about your finances, while applying for a line of credit without a credit card typically requires documentation to prove your income. This means it can be a little more complicated and time consuming to apply for a credit line.

What is a line of credit?

A line of credit is a financial product that allows you to borrow money repeatedly. You can borrow up to a certain limit, and then you repay what you owe.

How does a line of credit work?

Your issuer gives you checks you can write to access your line of credit. You can also have money deposited in your bank account by requesting a transfer in person, by phone, or through your bank’s website.