Line of Credit vs Credit Card: Which is Right for You?

Today, we are flooded with choices. From ordering food and groceries to paying for them, we have a variety of apps to scroll through and find the one that suits our needs. Similarly, plenty of financial tools are available for borrowing money—you can get a personal loan, use a pay-later app, credit cards, payday apps, etc.

Among these choices, the most preferred ones are credit cards and credit line cards. Although they may sound very similar, these are different financial tools that have different features. Read this blog to learn the key differences between the line of credit vs credit card and find which option is the best fit for you.

Key Differences Between a Credit Card and a Credit Line Card

With a basic understanding of these cards, let us now dive in and understand the difference between a line of credit and a credit card:

1. Operational Differences

Line of credit and credit cards use the same borrowing principles but function differently. Having a credit card is like having borrowed money with you up to your credit limit. But when you use your credit line card to borrow any amount, you need to first contact the lender to tell them the borrowing amount. Then, they will transfer the money for your purchase.

For example, if you need to borrow ₹20,000 from your ₹1 lakh credit line, you contact your lender and ask them to transfer the money. Later, if you need ₹40,000 rupees, you contact your lender again. On the contrary, with a credit card limit of ₹1 lakh, you can directly make purchases of ₹20,000 and ₹40,000 rupees using your card.

2. Borrowing Cost

If you buy something using your credit card and are unable to pay the outstanding balance on time, you have to pay interest charges as per the lender’s policies, your credit score, or market conditions. Similarly, credit line cards also charge interest on borrowed funds. However, the interest is only charged on the amount used, not your entire credit limit.

3. Repayment Terms

When it comes to credit card repayment, you can either pay the full outstanding amount or opt for a minimum monthly payment. Your minimum monthly payment is usually a small percentage of the total borrowed amount, and the leftover balance is carried over to the next billing period. Your lender levies a late fee when you fail to make your minimum payment on time. This affects your credit score negatively. While your line of credit will also require you to pay the outstanding amount, it differs from credit cards in terms of repayment. These repayments vary from lender to lender. Some may require payments only on interest, while others may require a combination of principal and interest payments.

4. Flexibility and Control

A credit card offers ease and flexibility for your everyday purchases and expenses at millions of stores worldwide, whether you’re buying bread at the supermarket or your new iPhone in a foreign country. Many lenders also offer rewards programs, cashback incentives, and travel discounts on their credit cards. One such example is One Credit Card, which lets you earn up to 5X rewards on your top two spending categories with fraud protection.

Credit line cards also offer flexibility in borrowing and repayment. You can borrow and repay the funds at your own pace, provided you meet the minimum payment requirements. Buying your new iPhone would be a piece of cake, but buying a cake wouldn’t be possible using a credit card. The reason is that your lender imposes a minimum withdrawal limit on a line of credit.

ALSO READ: Different Types of Credit Cards in India

Line of credit and credit cards work similarly but are meant for different purposes. Credit cards are supposed to fulfil all your little and big purchases. However, credit line cards are for bigger purchases, like a new bike or a down payment for your new flat. Yes, credit cards offer rewards that customers can take advantage of. But on the other hand, credit line cards offer lower interest rates. At the end of the day, it boils down to your preferences and needs.