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Line of credit vs credit card

Find out the difference between a line of credit and a credit card so that you can pick the right fit for you.

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Whether you want quick and easy access to credit or you’re looking for a bigger pool of cash to tap into, it helps to know the difference between a line of credit and a credit card. Learn more about the pros and cons of each type of credit, so that you can make an informed choice about which option best suits your needs.

Compare credit cards

Name Product Purchase Interest Rate Cash Advance Rate Annual Fee Minimum Income Benefits with this card Description
American Express Cobalt Card
19.99%
21.99%
$120
N/A
Earn 5 Membership Rewards points per $1 spent at eligible grocery stores, restaurants, bars, cafés and food delivery services, and earn 2 Membership Rewards points per $1 spent at eligible gas stations, and on transit and travel purchases, and earn 1 Membership Rewards point per $1 spent elsewhere. Terms apply
Earn up to 45,000 bonus Membership Rewards points. In your first year as a new Cobalt Cardmember, earn 2,500 Membership Rewards points for each monthly billing period in which you spend $500 on your card (for a total of 30,000 points in a year). Plus, earn a Welcome Bonus of 15,000 Membership Rewards points when you spend a total of $3,000 in purchases on your Card in your first 3 months of Cardmembership. Apply by May 5, 2021.
BMO World Elite Mastercard
19.99%
22.99%
$0 annual fee for the first year ($150 thereafter)
$80,000
Get 3 BMO Rewards points per $1 spent on eligible travel, dining and entertainment purchases (up to $50,000 spend annually), and get 2 BMO Rewards points per $1 spent on all other eligible purchases (and once you reach the $50,000 annual spend).
Get up to $575 in value in your first year. Get a bonus of 40,000 BMO Rewards points ($285 travel value booked on bmorewards.com). Plus, get the $150 annual fee waived in the first year.
American Express Aeroplan Card
30% annual interest rate applies to balances not paid in full each month
N/A
$120
N/A
Earn 2x the points on eligible purchases made directly with Air Canada and Air Canada vacations, 1.5x the points on eligible dining and food delivery purchases and 1x the points on everything else.
Earn up to 15,000 Welcome Bonus Aeroplan points and a bonus Buddy Pass as a new cardmember.
SimplyCash Preferred Card from American Express
19.99%
21.99%
$99
N/A
Earn 2% cash back on all eligible purchases
Earn 10% cash back on all eligible purchases (up to $400 in cash back) for the first four months of Cardmembership.
Tangerine Money-Back Credit Card
19.95%
19.95%
$0
$12,000
Earn 2% cash back in two categories of your choice (or three categories if you open a Tangerine Savings Account and directly deposit your cash back into the account), and 0.5% cash back on everything else.
Get a 1.95% interest rate on balance transfers for the first six months (valid within the first 30 days of account opening).
Choice Card from American Express
19.99%
23.99%
$0
N/A
Earn 1 American Express Membership Point for every $1 you spend on purchases.
Earn 12,500 Bonus Membership Rewards points when you charge $1,250 in purchases to your card within the first 3 months as a new Cardmember. Apply by May 5, 2021.
BMO Preferred Rate Mastercard
12.99%
12.99%
$20
$15,000
Take advantage of an introductory balance transfer offer, annual fee waiver in the first year, and low purchase and cash advance interest rates.
Get a rate of 3.99% on balance transfers for 9 months with a 1% transfer fee. Plus, get the $20 annual fee waived in the first year.
BMO eclipse Visa Infinite
20.99%
23.99%
$0 annual fee for the first year ($120 thereafter)
$60,000
Earn 5x the BMO Points for every $1 spent on groceries, dining in and out, gas and transit.
Get up to 40,000 points and the $120 annual fee waived in the first year. Earn 25,000 points after you spend $3,000 in the first 3 months and get 15,000 points on your first anniversary.
American Express Aeroplan Reserve Card
19.99%
21.99%
$599
N/A
Earn 3x the points on eligible purchases made directly with Air Canada and Air Canada Vacations, 2x the points on eligible dining and food delivery purchases in Canada, and 1x the points on everything else.
Earn up to 65,000 Welcome Bonus Aeroplan points and a $100 Statement Credit as a new cardmember.
American Express Business Edge Card
19.99%
21.99%
$99
N/A
Earn 3 Membership Rewards points for every $1 spent on eligible business essentials including office supplies, electronics, rides, gas, eats and drinks (up to an annual earn of 75,000 Membership Rewards), and earn 1 Membership Reward point for every $1 spent on all other eligible purchases
Earn up to 42,000 Membership Rewards points in your first year. Earn a Welcome Bonus of 30,000 Membership Rewards points when you spend at least $5,000 on eligible purchases within the first three months, and earn 1,000 Membership Rewards points each month (a total of 12,000 annually) when you spend a minimum of $3,000 on eligible purchases
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What is a line of credit?

A line of credit is a flexible loan linked to your bank account that maintains a balance you can draw from. It’s a bit different from a regular loan in that you only pay interest on the money that you take out, rather than the money that’s available to you.

For example, when you take out a regular loan for $25,000, you’ll start paying interest on the whole amount right off the bat. When you take out a line of credit for the same amount, you’ll only accumulate interest on the money you withdraw from it. So if you transfer $1,000 from your line of credit to your bank account, you’ll only pay interest on the transfer, not the $24,000 left over on your line of credit.

There are two types of credit that you can get with a line of credit, outlined below.

  • Secured. This line of credit is insured by some form of collateral or an asset like your house. If you can’t make your payments, the bank is allowed to sell whatever you put on the line to get their money back.
  • Unsecured. An unsecured line of credit isn’t backed by any asset or collateral. Instead the bank relies on your credit history (including credit scores, debt-to-income ratio and other factors) to determine your eligibility.

How is a line of credit different from a credit card?

  • Use of card. A credit card is better for small everyday purchases while a line of credit is typically used to pay for big-ticket items as well as business and emergency expenses.
  • Annual fees. You won’t pay an annual fee on a line of credit, but you often will on a credit card.
  • Interest rates. The interest you’ll be charged on a line of credit will typically be much lower than on a credit card.
  • Incentives. Unlike credit cards, a line of credit won’t offer rewards or bonus offers.
  • Credit limit. You’ll typically get a much higher credit limit on a line of credit than on a credit card.
  • Secured vs unsecured. A line of credit will often be secured, whereas credit cards are often unsecured.
  • Cash advances. You won’t be charged for a cash advance on a line of credit.

Common features for lines of credit

  • Good credit score. You’ll need to have a credit score that’s at least above 650 to qualify for a line of credit. Check out our guide to credit scores for more information on minimum limits.
  • Large amounts. The maximum amount you can borrow varies, but can reach as high as $500,000.
  • Low interest rates. The main draw of a line of credit is the low interest rate which typically ranges between 3% and 5% (as opposed to 20% on the average credit card).
  • Flexible repayment. You can take money out on your own terms and repay on a more flexible schedule than what’s required by a credit card.
  • Secured. You’ll need to be ready to put up an asset or other form of collateral to secure the loan. This means that you’ll need to make absolutely sure you can make repayments or the bank could sell off whatever you put on the line.
  • No annual fees. There are no additional fees to have a line of credit, so you’ll save money upfront.

Common features for credit cards

  • Fast Cash. Credit cards are the most convenient form of credit since you can instantly pay with your card instore and online.
  • Small purchases. They’re best suited to small purchases and typically come with a maximum limit below $10,000.
  • High interest rates. They usually have high interest rates, so they’re best suited for borrowers who know they can make their payments on time every month.
  • Rewards. They’re designed to let you earn cashback or rewards on all of your purchases.
  • Benefits. Many cards also come with benefits like extended warranty, roadside assistance, travel insurance and more.

Pros and cons of each

This table provides a short summary of the pros and cons of each type of credit.

Types of CreditProsCons
Line of Credit
  • Higher limit
  • Lower interest rates
  • Good for cash advances
  • No annual fee
  • Flexible repayment
  • No rewards
  • Less convenient
  • Can’t use for online purchases
  • Secured
Credit Card
  • Rewards
  • Convenient
  • Good for online purchases
  • Unsecured
  • Lower limit
  • Higher interest rates
  • Bad for cash advances
  • Annual fees
  • Strict repayment schedule

Which option is right for me?

The option that’s the best fit for you will really depend on your current situation.

  • Line of credit

A line of credit is suited to people who want access to a large pool of cash for emergency or business expenses. It can be used to help pay for tuition, medical bills, home renovations, salaries and other major expenses.

You’ll need to have a good credit score and be ready to put up an asset or another form of collateral to secure the loan. This means that you’ll need to make absolutely sure you can make repayments or the bank could sell off whatever you put on the line.

  • Credit Card

Credit cards are useful for people who want fast access to cash and rewards in return for everyday purchases. They can be used to buy just about anything, from gas and groceries to electronics and clothing.

Cards are typically suited to people who want to earn cash back and rewards on purchases, as well as added benefits like extended warranty and insurance. Credit cards are especially useful for customers who can commit to making monthly payments on time and avoid paying ongoing interest.

Bottom line

If you’re trying to decide between a line of credit and a credit card, it helps to know how much money you need and when you can pay it off.

Frequently asked questions

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