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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 just a few key differences to help you decide which is best for your personal and/or business needs. 

First, let’s define a line of credit. A line of credit is a financial product that 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 that you make 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 compared to credit cards, and may have a lower interest rate than a credit card. If you secure your line of credit against your home, with a product called a HELOC (Home Equity Line of Credit), you will typically get a lower rate than a personal line of credit, as the former is secured against your home, while the latter is unsecured. If the line of credit is for your business, it may be secured or unsecured, depending on whether you choose to back it with specific collateral. 

Below, see some basic differences between the two:

Line of Credit:

  • Provides an individual or business with a revolving credit limit 
  • Borrow up to the approved limit and repay  
  • Gives you the freedom to borrow and repay on your own terms, which can provide 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. 
  • Must make minimum monthly payments, and if you carry a balance, you may be subject to higher interest rates 
  • Often comes with rewards programs and additional benefits 
  • 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. 

Whether you decide you need a line of credit for yourself or for your business, a personal or business credit card, or both, don’t hesitate to reach out to us for help!