Line of Credit vs Credit Card | Consumer Banking 101

In this article, we’re comparing the line of credit vs credit card options and breaking down the differences and similarities for you.

This article is part of our series on non-resident banking. If you would like to access our other free resources, you can start with our guide to the largest banks in Canada by clicking here.

Feel free to use the table of contents to jump ahead to the sections most relevant to you.

Table of Contents

1. Line of Credit vs Credit Card
2. Is a Line of Credit Better Than a Credit Card?
3. Benefits of Personal Lines of Credit
4. Benefits of a Credit Card
5. Frequently Asked Questions
6. Ready to Explore Your Options?

Line of Credit vs Credit Card

The main difference between a line of credit and a credit card is that a line of credit typically has much lower interest rates and higher limit amounts. On the other hand, a credit card is easier to use for most consumer purchases and can offer other incentives like travel rewards and cash back on purchases. 

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Is a Line of Credit Better Than a Credit Card?

A line of credit may be better than a credit card if you are looking to use it to make a larger purchase with a credit balance that will be carried out for a longer period of time. This is because a line of credit typically has lower annual percentage rates applied to the used credit and has higher limits.

Alternatively, if you are looking to make short-term purchases and you plan to pay off the credit before the due date, a credit card may be a more efficient and affordable way to make a purchase. Likewise, if you are looking to use credit to make an online or in-person purchase, a credit card may be the best (or only) option available.

In the following sections, we’ll look at the benefits of both personal lines of credit and credit cards.

Benefits of Personal Lines of Credit

A personal line of credit can offer a number of benefits when being used to make appropriate purchases. In this section, we’ll take a look at some of the benefits that most consumers find most relevant.

Benefits of a Personal Line of Credit

• Rolling credit facility
• Lower interest rates than credit cards
• More flexibility than long-term financing

Benefits of a Credit Card

Like a line of credit, credit cards can offer a number of benefits when used correctly and in the right situation. Below are a number of benefits that most people can tap into when using credit cards responsibly.

Benefits of a Credit Card

• Rolling credit
• No applied interest when paid correctly
• Ability to quickly strengthen your credit score
• Easily accessible for consumer purchases
• Fraud protection when making purchases online
• Travel rewards and loyalty programs
• Cash back bonuses on qualifying purchases

Frequently Asked Questions

Below are three of the most common questions that we receive from people looking to compare a line of credit vs a credit card. If you have further questions you would like answered, don’t hesitate to get in touch with us directly.

Why Would Someone Typically Use a Line of Credit Instead of a Credit Card?

Someone would typically use a line of credit instead of a credit card when making a larger purchase that involves carrying a balance of debt for a longer period of time. This is because a line of credit typically has a lower annual percentage rate (APR) and a higher limit, resulting in the total interest paid to be much lower.

What Are the Disadvantages of a Line of Credit?

One of the main disadvantages of a line of credit is that when variable interest rates rise, the rate applied to a line of credit also typically increases. Additionally, while a line of credit typically has a lower annual percentage rate than a credit card, they also have higher rates than longer-term financing options.

What Is the Difference Between a Credit Card and a Credit Line?

The main difference between a credit card and a credit line is that a credit card typically has higher annual percentage rates (APR) and lower balance limits. In other words, a credit line is a more affordable form of credit, and it is typically used for making larger purchases with credit that will be carried for longer periods of time.

Ready to Explore Your Options?

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