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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.

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 Welcome Offer Rewards Purchase Interest Rate Annual Fee Min. Credit Score Description
HSBC +Rewards™ Mastercard®
30,000 Points
2x points per $1 spent
11.9%
$0 annual fee for the first year ($25 thereafter)
Min. recommended credit score: 630
Get 30,000 Points (up to $150 in value) when you spend $2,000 in the first 6 months. Plus, get the 1st year annual fee waived for the primary cardholder ($25 value). Apply by January 31, 2022.
BMO CashBack Mastercard
5% cash back
Up to 3% cash back
19.99%
$0
Min. recommended credit score: 660
Get 5% cash back on all eligible purchases in the first three months of card membership (up to max. spend of $2,000). Plus, get a rate of 1.99% on balance transfers with a 1% balance transfer fee for nine months.
Tangerine World Mastercard
15% cash back
Up to 2% cash back
19.95%
$0
Min. recommended credit score: 680
Earn an extra 15% cash back (up to $150) on up to $1,000 of everyday purchases in the first 2 months Until November 30, 2021. Plus, get a 1.95% interest rate on balance transfers for the first 6 months (valid within the first 30 days of account opening, 1% transfer fee applies).
BMO Preferred Rate Mastercard
3.99% rate on balance transfers for 9 months
N/A
12.99%
$20
Min. recommended credit score: 660
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.
Neo Financial Credit Card
N/A
Average 4% cash back
19.99% - 24.99%
$0
Min. recommended credit score: 600
Earn an average cash back of 4% at thousands of local and national Neo partners including most major gas and grocery stores, restaurants, gyms, coffee shops and more. Earn a guaranteed 1% cash back on all spend at non-partners.
American Express Cobalt Card
50,000 points
Up to 5x points per $1 spent
20.99%
$155.88
Min. recommended credit score: 700
Earn up to 50,000 Membership Rewards points in your first year. Earn 2,500 Membership Rewards points for each monthly billing period in which you spend $500 in net purchases on your card (up to 30,000 points). Plus, earn a Welcome Bonus of 20,000 Membership Rewards points when you spend a total of $3,000 in purchases on your Card in your first 3 months of Cardmembership.
Brim Mastercard
Up to $200 worth of bonuses
1 point per $1 spent
19.99%
$0
Min. recommended credit score: 700
Earn up to $200 worth of bonus points when you shop with Brim retailers for the first time through the Brim mobile app.
Tangerine Money-Back Credit Card
15% cash back
Up to 2% cash back
19.95%
$0
Min. recommended credit score: 680
Earn an extra 15% cash back (up to $150) on up to $1,000 of everyday purchases in the first 2 months Until November 30, 2021. Plus, get a 1.95% interest rate on balance transfers for the first 6 months (valid within the first 30 days of account opening, 1% transfer fee applies).
SimplyCash Card from American Express
4% cash back
Up to 1.25% cash back
19.99%
$0
Min. recommended credit score: 700
Earn 4% cash back on purchases (up to $200 cash back) for the first 6 months of Cardmembership.
American Express Green Card
10,000 points
1 point per $1 spent
20.99%
$0
Min. recommended credit score: 700
Earn a Welcome Bonus of 10,000 Membership Rewards points when you charge $1,000 in purchases to your card in the first 3 months as a new Cardmember.
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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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