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

All credit cards are a type of line of credit, but not all lines of credit function as credit cards. They differ in how you access funds, repayment terms and annual percentage rate (APR). Here’s how they compare:

Key Takeaways

• A line of credit vs. credit card mainly differs in how and when you pay interest. A line of credit usually starts charging interest as soon as you draw funds, while a credit card often gives you a grace period of about three to four weeks to pay purchases in full before interest applies.

• Lines of credit are better for larger, less predictable expenses because they can offer higher limits, immediate access to cash and often lower APRs, but you’ll pay interest right away and the account may have a limited draw period.

• Credit cards are better for everyday spending you can pay off quickly since they’re easy to use at the register, may earn rewards and can be interest-free if you pay your statement balance by the due date, though rates are typically higher and cash advances can be costly.

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Yes — paid is paid, no matter the amountOnly if the collector agrees in writingNo — "settled" looks different to future lendersOnly matters for loans, not credit cards

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Key Differences Between a Line of Credit and a Credit Card

Choosing between a line of credit and a credit card may mean taking a look at the differences:

What Is a Line of Credit?

A line of credit is a revolving form of credit from a bank or credit union. You can borrow as much as you want up to the approved limit. As you borrow money, your available credit will decrease and as you repay, your available credit will replenish.

With a line of credit, you'll only pay interest on the amount of credit you use. Interest often begins to accrue as soon as you use your credit line, so paying it back quickly is key to avoiding excessive fees.

Lines of credit are especially helpful if you intend to make large purchases that can't readily be paid off, think auto repairs, education expenses and even business expenses. That's because they tend to have lower interest rates than a credit card. Lines of credit can include personal lines of credit, home equity lines of credit (HELOCs) and even business lines of credit.

If you're looking to understand additional options for financing, you might want to compare installment loans vs. revolving credit.

How Does a Line of Credit Work?

A line of credit typically involves a three-to-five-year window called a "draw period." During this time, you can borrow and repay money as you need it. Once the window closes, the line of credit is no longer revolving. You'll either be obligated to pay back all the money you owe at once, or you'll be placed on monthly installments.

Lines of credit may be either secured or unsecured, depending on the type. Here are some examples:

• A personal line of credit is generally unsecured. You can quickly apply online, similar to a credit card.

• A HELOC is secured, as it uses your home as collateral. HELOCs often require much more effort to open, such as a home appraisal and mortgage statements.

To find the best personal line of credit for your situation, compare rates, fees and limits across a few lenders before you apply.

What Is a Credit Card?

Similarly, a credit card is a revolving line of credit, often with a set limit. Your available credit will increase and decrease as you use it and pay it off.

Credit cards also only charge interest on the amount you borrow. Unlike a line of credit, you'll usually only pay interest on a balance that you carry month-to-month. In other words, you'll have a grace period of nearly a month to repay your debt before you're charged interest.

Credit cards are offered by banks and credit unions and are most frequently used for small purchases that you can pay back within a month, such as:

• Grocery shopping

• Gas for your car

• Monthly expenses, such as streaming services and other subscriptions

How Does a Credit Card Work?

Credit cards never stop revolving. As long as you continue to pay down your balance and your account doesn't become delinquent, you'll always have borrowing power. The bank may proactively raise or lower your credit limit depending on how responsible you are with your credit.

A credit card may also be secured or unsecured.

• Unsecured credit card: Does not require collateral and is typically available to borrowers with established credit.

• Secured credit card: Requires a refundable security deposit, which usually becomes your credit limit and is often used to build or rebuild credit.

If you're looking to finance personal expenses, you may want to consider how a personal loan vs. credit card compare.

Line of Credit: Pros and Cons

Credit Card: Pros and Cons

How To Choose the Right Option for You

Confused about whether to choose a credit card or line of credit for a purchase? These guidelines may help:

• If you can pay your credit card balance in 30 days, consider a credit card

• If you have a large emergency expense, consider a line of credit

• If you like earning rewards on your purchases, consider a credit card

• If you need a higher credit limit, consider a line of credit

• If you have large purchases you can’t pay off quickly, consider a line of credit

• If you have multiple balances that you want to consolidate, consider a line of credit

The Bottom Line

A line of credit and a credit card are both revolving credit, but they fit different jobs. A credit card works best for everyday spending, smaller purchases you pay off each month and earning rewards. A line of credit fits larger or ongoing costs, expenses you can’t put on a card and balances you’ll carry at a lower rate. Consider what you’re borrowing for and how fast you can pay it back to as you weigh your options. If you're looking for more predictable payments, you may want to consider a how line of credit vs. loan compare.

FAQs

What’s the main difference between a line of credit and a credit card?

Both are revolving credit, so you borrow up to a limit, pay it back and borrow again. The main difference is how you reach the money. A credit card gives you a card to swipe or tap at checkout, while a line of credit usually works through transfers to your bank account or checks. That makes a line of credit better for costs you can’t put on a card, like rent or a contractor who takes cash.

Does a line of credit have a lower interest rate than a credit card?

Often, yes. A personal line of credit usually carries a lower rate than a credit card, which can make it cheaper for larger balances you’ll carry for a while. Keep in mind that a line of credit often charges interest as soon as you draw the money, while many credit cards offer a grace period that lets you skip interest if you pay the balance in full each month.

Can you earn rewards with a line of credit?

Rarely. Rewards like cash back, points and travel perks are mostly a credit card feature. The value of a line of credit is in its flexible access and lower rate, not rewards. If earning rewards on everyday spending is your goal, a credit card is the better tool.

Which is better for a large purchase?

A line of credit often fits better for a big expense. It tends to offer a higher limit than most credit cards and a lower rate, so it can be cheaper if you’ll carry the balance for a while. A credit card can still make sense for a large purchase if it has a 0% intro APR offer and you can pay it off before that period ends.

Key Terms

• Line of credit: A revolving credit account that lets you borrow up to a set limit, repay what you use and borrow again during a draw period, with interest typically starting as soon as you take out funds.

• Credit card: A revolving credit account accessed with a physical or virtual card that you use for purchases, usually with a grace period during which you can pay your statement balance in full to avoid interest.

• Revolving credit: A type of credit where available funds replenish as you repay, allowing you to borrow, repay and borrow again up to a preset limit instead of receiving a single lump-sum loan.

• Grace period: The time between the end of a credit card billing cycle and the payment due date when you can usually pay your purchase balance in full without owing interest.

• Draw period: The set time frame on a line of credit, often a few years, during which you can take advances and repay; after it ends, you may need to repay in full or switch to a repayment schedule.

• Secured line of credit: A line of credit backed by collateral, such as home equity or savings, which can help you qualify for a higher limit or lower APR but puts the collateral at risk if you don’t repay.

Summary generated by AI, verified by MoneyLion editors

Sources

• Consumer Financial Protection Bureau: What is a Personal Line of Credit?

• Consumer Financial Protection Bureau: What is the difference between a fixed APR and a variable APR?

• Consumer Financial Protection Bureau: What is a home equity line of credit (HELOC)?

Rudri Patel contributed to the reporting for this article.

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