What is difference between credit card and Line of credit ?
When it comes to credit card and line of credit , there are all sorts of different cards to choose from. There are charge cards that require you to pay your balance in full every month, credit cards that let you pay your balance back over time with interest, and in between those two ends of the spectrum there are hybrid credit cards that combine elements of both. There’s also the growing popularity of virtual credit card numbers that can be used for online purchases instead of a physical card. And while the names might be confusing and there are lots of different types of plastic out there, they all boil down to essentially two main things: How much money you can borrow and how much you have to pay back. There’s a lot more to each type of card than just those two factors, but at their core, these are the two main differences. at certain point of time in life getting access to credit can prove to be extremely helpful particularly when your bank account is not quite adequate to handle the massive expenses it is also handy if you are ever faced with a last minute urgent cost that you need some financial support with there are several credit products out there but today let’s concentrate on the two major ones credit cards and lines of credit let us not mistake them into understanding that they are the same people often take a line of credit to pay off their credit card debt yes that’s true under the condition that you can repay it by the due date credit cards allow you to borrow money from the bank without paying any interest charges whereas with a line of credit the bank essentially allows you to borrow money up to a certain limit when needed and charges interest immediately until you repay the same. let’s understand both these products in more detail with a credit card there is what we call as a billing cycle you essentially are borrowing money from the bank and making purchases during the billing cycle like grocery netflix and so on at the end of the billing cycle the bank will issue a statement balance for which it will allow you 21 days to repay after which they will start charging you interest if you fail to pay back with a line of credit the bank is essentially allowing you to borrow money up to a certain limit with the line of credit the balance will essentially be the amount that you borrow the biggest difference between the two is that with the line of credit there is no grace period and the interest is charged to you on a daily basis immediately till the time the money is paid back now you may be thinking then why would someone use a line of credit right well.
Credit cards are financial instruments that let you borrow money against a line of credit with a specified interest rate. There are different types of credit cards, but the main idea behind all of them is that you can use a credit card to buy something today even you don’t have the money to pay for it now.. Because the money you spent on the item gets added to your credit card balance, you’ll have to pay interest on that money so that the credit card company can make money off the money they “loaned” to you. That’s how they make their money. The length of time you have to pay back that money starts when you buy the item with your credit card. The exact day that you bought the item becomes the date on which you have to start paying back the balance.
Line of Credit
A line of credit is a type of loan that you can access whenever you need to. It’s also sometimes called a credit line, which can make things even more confusing. A line of credit is basically like taking out a short-term loan: You get a certain amount of money “loaned” to you and you have to start paying that money back right away. But the cool thing about a line of credit is that the amount you’re “loaned” doesn’t have to be the same every time. If you’re being offered a line of credit, you’re able to borrow as much or as little money as you need.
What Is The Difference Between A Credit Card And Credit line card?
Number one collateral almost always credit cards are unsecured while credit lines are just as often secured as an example lines of credit can be secured against a house or investments there are benefits associated to having a secured line of credit and to know more number two limits credit cards usually have a lower limit than that of a line of credit most people have a credit card in the range of four thousand to ten thousand dollars whereas lines of credits can be the range of ten thousand to thirty thousand dollars in fact with secured lines of credits limits can be as high as three hundred thousand to five hundred thousand dollars and even more depending on the value of your property or assets number three interest rates the interest payable on a credit card is higher than that of the interest rate that is charged on a line of credit the bank usually charges the same interest to people applying for credit cards at around 21 percent whereas for a line of credit they can be as low as prime plus 1 percent and as high as prime plus 15 the interest rates on lines of credit are based on multiple factors like the credit score relation with the bank credit history and so on another factor is whether a line of credit is secured or otherwise since there is a collateral asset the banks usually offer a lower interest rate on secured lines of credit closer to the prime rate as they have something to fall back on number four rewards credit cards usually have certain rewards program that you could benefit from like cash backs e-gift vouchers and travel rewards no such benefits are available with that of a line of credit these cashbacks can pile up and if you are a cautious user of debt you could actually make some extra money with this benefit using a credit card credit cards also offer insurance protection and other benefits like travel insurance mobile device protection and others that are not available with that of a line of credit also another major difference between the two is that it is easier to get approved for a credit card than getting approved for a line of credit also some credit cards come with an annual fee whereas lines of credits usually come with no annual fees now no two products are the same and both of these products have their own pros and cons. the decision making factor in which one to use is dependent on the reason for the purchase if you’re buying something that you already have cash for and it will not affect your liquidity use a credit card however if you’re buying something expensive that you do not have the cash for and would like to paid over a longer period of time use a line of credit at the end of the day both of them are credit products and therefore it is important that you be careful in going about using them or else you would end up.
Why Are People Confused About These Two Terms?
These terms have both evolved over time, and more complex financial products have been created that incorporate elements of both credit cards and lines of credit. They are also used interchangeably in some cases. However, these definitions are still very accurate. Credit cards are the most common way people borrow these days, which means most people are more familiar with the term “credit card.” Most people have credit cards, so it makes sense why the term “credit card” is more common. Simply put, credit cards are easier to obtain than lines of credit. Most people can qualify for a credit card, but not everyone can qualify for a line of credit. Not only is it easier to obtain a credit card in most cases, but the interest rates tend to be lower as well.
The main takeaway here is that credit cards are revolving credit, while lines of credit are non-revolving credit. Simply put, credit cards are easier to obtain than lines of credit, and credit card debt is easier to pay off than a line of credit. Credit cards are used on a daily basis by millions of people, while lines of credit are only used in certain situations. All of this is to say that credit cards and lines of credit are two different things.