Lines of credit and credit cards are two very similar types of financial products that help consumers, small business owners and even large corporations access borrowed funds on an as-needed basis. The main difference is that a line of credit doesn’t necessarily have a credit card tied to it for easy access to the funds.
To be clear, a credit card provides a line of credit, but you can get a line of credit without a credit card. Credit cards and other lines of credit also differ in terms of intended uses, benefits and even grace periods.
Line of Credit vs. Credit Card: Key Differences
Feature | Line of Credit | Credit Card |
---|---|---|
Intended Use | Special big-ticket consumer & business expenses. | Everyday consumer & business spending. |
Proof of Income Required? | Yes, usually in the form of your latest W-2 or tax return. | Yes, issuers are required to verify your ability to pay. |
Secured By Collateral? | Sometimes, but not required. | Secured Cards are, while “normal,” unsecured credit cards are not. |
Credit Building Impact | Reported monthly to credit bureaus | Reported monthly to credit bureaus |
Credit Line | $1,000 - $100,000+ | $300 - $100,000+ |
APRs | Purchase: 4% - 30% typically | Purchase: 22.89% on average
Cash Advance: 24.89% on average |
0% Introductory APR | Rarely | 0% for 6-21 months |
Annual Fees | Range: $0 - $175 | Range: $0 - $995 Average: $22.29 (new credit card offers) |
Rewards | Rarely | Yes, 1.15% cash back on average |
Cash Advance Fee | None | 3.93% |
Grace Period | None | 20 – 30 days after bill is made available |
Choosing Between a Credit Card & a Line of Credit
The choice between a credit card and a line of credit depends primarily on whether you need cash, how much you need and, possibly, what assets you have to serve as collateral. Most people will be better off simply getting a credit card, as it’s more straightforward than opening a traditional line of credit and should be able to serve most spending and funding needs splendidly.
You Should Get a Credit Card If:
- You plan to use it for everyday purchases.
- You want to earn rewards on purchases.
- You plan on paying back the debt quickly.
- You want to take advantage of a 0% APR credit card offer.
You Should Get a Line of Credit If:
- You plan to use it for large purchases, such as a car or a house.
- You want a low ongoing APR.
- You need a long time frame to pay back the debt.
- You need a higher borrowing limit than what you can get from a credit card.
It makes sense to consider a line of credit if you need a significantly higher credit line than a credit card will provide (particularly if you have property to put up as collateral), or if you need to borrow actual cash for big-ticket purchases. However, you should still verify that you’re not missing any unusually attractive credit card offers. It’s hard for a normal line of credit to compete with 0% for 15-21 months and no fees, at least for folks looking at a short repayment timeline.
Ask The Experts: Extra Credit
For more insight into the distinct roles that credit cards and credit lines play in the payments landscape and overall economy, we turned to a panel of leading business and personal finance experts. You can check out their bios and thoughts below.
- The term “credit line” seems to be far less popular and much less understood than “credit card” – why is that?
- When do you recommend consumers consider credit lines?
- What is the biggest potential pitfall you recommend consumers watch out for when using / considering credit lines?
- How do business lines of credit differ in terms of the above issues?
WalletHub experts are widely quoted. Contact our media team to schedule an interview.