Line of Credit vs Credit Card

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Line of Credit vs Credit Card: What’s the Difference?

If you’ve ever wondered what’s better, a line of credit or a credit card, you’re not alone. These two borrowing tools are popular in Canada, and each comes with its own set of benefits and challenges.

In this blog, we’ll compare a line of credit vs a credit card so you can decide which is best for your financial needs. We’ll break it down in simple terms, explain how they work, and share helpful tips for using them wisely.

What Is a Line of Credit?

A line of credit is a flexible loan from a bank, credit union, or lender. It gives you access to a set amount of money that you can borrow as needed. You only pay interest on what you use, not the full limit. Think of a line of credit like an amount of money that you can borrow, repay, and borrow up to your limit again. It’s there when you need it, and you can use it for things like car repairs, bills, or even home expenses.

What Is a Credit Card?

A credit card lets you make purchases on credit, and you must repay what you spend. You get a credit limit, and you’re expected to make at least the minimum payment each month. If you don’t pay off your balance in full, you’ll be charged interest and often at higher rates than a line of credit.

Key Differences Between a Line of Credit vs a Credit Card

Here’s a detailed comparison of the two options presented side by side for your convenience.

Feature	Line of Credit	Credit Card
Interest Rate	Usually lower (e.g., 5%-10%)	Usually higher (e.g., 19%-24%)
Credit Limit	Higher Limit	Lower Limit
Payment Flexibility	Pay as you use	Minimum monthly payments required
Best Used For	Emergencies, Big Expenses	Daily purchases, Small items
Cash Access	Direct Deposit to bank or ATM	Cash Advance (with higher fees)
Rewards or Points	Not often	Often includes rewards programs

When to Use a Line of Credit

A line of credit is a great option if:

• You want a backup fund for emergencies
• You need help covering a car repair or home fix
• You need flexibility to borrow only what you need

Many Canadians use a line of credit to avoid high-interest loans. If you want to know more about what a line of credit is, check out this Nerdwallet guide.

When to Use a Credit Card

A credit card may work better if:

• You’re making small everyday purchases
• You want to earn rewards or points
• You can pay off the balance each month

Just be careful. Credit cards can lead to debt if you spend more than you can repay. Check out this comparison from CreditCardGenius for more.

Which Option is Better for You?