Line of Credit vs. Credit Card: The Differences, Explained

Americans go crazy for credits. And not just the credits in movies. More than two-thirds of Americans have credit cards. 

Many people use their credit cards without thinking about them. Yet you should. Before you buy something, you need to think about the line of credit vs credit card debate. 

What is a line of credit, and what is a credit card? How does a line of credit work? What are the main features that distinguish the two of them? 

Answer these questions and you can find the right way to purchase everything you want. Here is your quick guide. 

Line of Credit

A personal line of credit lets you borrow money against a revolving credit line. Many people are familiar with loans, which let them borrow a set sum of money. Under a line of credit, you can borrow more than one lump sum. 

A private line of credit can be versatile. Some people like to withdraw money from their lines, which they can do without paying fees. Others use their lines to buy goods and services.

Yet you cannot borrow as much money as you want. You may need to pay annual fees in order to maintain your credit. People with weak credit scores may need to provide collateral so they can receive lines in the first place.

Credit Card

A credit card gives you a pool of credit that you can use whenever you want. Credit card companies design credit cards for spending, not for withdrawing or saving money. But they also give out rewards and benefits for using cards, including warranty protection for purchases. 

You will have to pay fees in order to maintain and use your credit card. Some companies charge fees with interest, and they can become extensive if you do not pay your debt off. 

Similarities and Differences

It can be easy to confuse lines of credit and credit cards. Both offer supplies of money that you can use as you please. Both go toward purchasing items and services, including expensive ones.

The main difference between a line of credit and a credit card is withdrawing money. You can borrow cash and keep it with a line of credit. You cannot do so with a credit card.

A few banks that offer lines of credit may let you earn rewards. But it is more customary to offer rewards for credit cards instead of lines. In exchange for rewards, you have to pay higher fees and incur potential penalties. 

The Line of Credit vs. Credit Card Debate

The line of credit vs. credit card debate touches on a few topics. A line of credit allows access to a revolving credit line. They can use the money for borrowing and purchasing. 

A credit card gives a person access to money for purchasing products. Credit cards tend to be more expensive due to their higher fees. Yet their rewards can make entire purchases free, which many people find preferable.

Lines of credit and credit cards are two ways you can make purchases. Read more personal finance guides by following our coverage.

Ramone

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