Line of Credit vs Credit Card: Which Should You Get?

Both a line of credit and a credit card are forms of revolving credit. This means you can borrow up to an approved limit, repay what you use, and then access credit again. While they may appear similar, they function differently and may suit different borrowing situations.

The most appropriate option can depend on how you plan to use the funds, how long you expect to carry a balance, and your personal financial circumstances. This guide explains the differences between a line of credit and a credit card, how they are commonly used, and factors to consider when comparing them.

What is a line of credit?

A line of credit is a revolving credit account with an approved borrowing limit. You can access funds when needed, repay them, and then reuse the available credit within that limit.

Unlike credit cards, lines of credit are usually accessed through transfers or withdrawals rather than through a physical card. Funds may be accessed through online banking, transfers to a bank account, or linked payment accounts depending on the lender.

Key features of a line of credit may include the ability to borrow only what you need up to the approved limit, paying interest only on the amount currently used, and repaying and reusing funds within the available credit limit. Interest rates and product features vary between lenders and products.

Types of lines of credit

Personal line of credit (PLOC)

A personal line of credit is usually unsecured and assessed based on factors such as income, credit history, and overall financial position. Limits and interest rates vary between lenders, and these products typically do not include rewards programs or interest-free periods.

Home equity line of credit (HELOC)

A home equity line of credit is secured against property. Because the loan is secured, interest rates may differ from unsecured products and borrowing limits may be larger depending on the available equity in the property. As the loan is secured, failing to meet repayments may place the property used as security at risk.

How a line of credit works

A typical line of credit involves applying for a credit limit and accessing funds when required. Interest is generally charged on the amount currently borrowed rather than the full limit.

Repayment requirements vary by lender, but most products require regular repayments that at least cover interest or a minimum portion of the outstanding balance. As repayments are made, the available credit may increase again up to the approved limit.

What is a credit card?

A credit card is a revolving credit product accessed using a physical or digital card. It is commonly used for everyday purchases such as groceries, fuel, bills, and online shopping.

Credit cards may include additional features depending on the product, such as interest-free periods on eligible purchases, rewards programs, or purchase protection features. Terms, fees, and interest rates vary between providers.

How credit cards work

After applying and being approved for a credit limit, you can make purchases using the card. Each month, the credit provider issues a statement showing transactions, the balance owing, and the payment due date.

If the full balance is repaid by the due date, interest may not be charged on eligible purchases during the interest-free period. If a balance remains after the due date, interest is typically charged on the outstanding amount according to the card’s terms and conditions.

Types of credit cards

Standard credit cards usually have lower or no annual fees and limited additional features.

Rewards credit cards offer benefits such as points, cashback, or travel rewards, but may have higher fees or different interest rates depending on the product.

Low-rate credit cards focus on lower ongoing interest rates and generally include fewer additional features.

Balance transfer cards may offer temporary promotional interest rates on transferred balances, often subject to conditions and fees.

Difference between a line of credit and a credit card

Although both products provide revolving credit, they differ in how funds are accessed, how interest is structured, and how they are commonly used.

A line of credit is generally accessed through transfers or withdrawals rather than a card. Interest is typically charged on the amount drawn, and product features vary depending on the lender and the structure of the facility.

A credit card is primarily designed for transactions and payments through a physical or digital card. Some products include interest-free periods for eligible purchases and additional features such as rewards programs.

When a line of credit may be considered

Some borrowers consider a line of credit when they want flexible access to funds over time rather than receiving a single lump-sum loan.

Examples may include situations where expenses occur gradually or are uncertain in timing, such as staged home improvements, education expenses paid over time, or managing irregular income. Some consumers also choose to keep unused credit available for unexpected expenses, although relying on credit for emergencies should be considered carefully alongside savings and repayment capacity.

A line of credit is sometimes considered for consolidating higher-interest debts, although this approach depends on the interest rates involved and whether further borrowing is avoided.

When a credit card may be considered

Credit cards are often used for everyday purchases and short-term spending. Some cardholders aim to repay the balance in full each month to avoid interest charges during the interest-free period where applicable.

They may also be used for online transactions, recurring bills, or purchases where card payments are widely accepted. Some cards include additional features such as rewards programs or purchase protection benefits, depending on the product.

Credit products such as credit cards may contribute to a person’s credit report through repayment history information, although credit reporting outcomes depend on several factors and the individual’s repayment behaviour.

Can you have both?

Some consumers choose to use both a credit card and a line of credit for different purposes.

For example, a credit card may be used for everyday transactions, while a line of credit may be kept available for larger or irregular expenses. Managing multiple credit products requires careful budgeting to ensure repayments remain affordable and consistent.

Before taking on any form of credit, it is important to consider whether repayments can be comfortably maintained over time.

Credit24 line of credit

Credit24 offers a personal line of credit that provides access to funds within an approved borrowing limit, subject to lending criteria and responsible lending obligations.

Features may include:

• borrowing between $500 and $10,000
• interest charged only on the amount used
• no application, monthly, or withdrawal fees
• flexible repayments of up to 36 months
• access to funds via OSKO for eligible banks

You can apply when you feel ready by visiting:

Apply now

Frequently asked questions

What’s the main difference between a line of credit and a credit card?

A credit card is primarily designed for purchases and payments using a card. A line of credit generally provides access to funds through transfers or withdrawals within an approved limit.

Which typically has lower interest rates?

Interest rates vary between lenders and products. In some cases, certain lines of credit may have different rates compared with credit cards, but the actual cost depends on the product terms and how the credit is used.

Can I use a line of credit like a credit card?

In most cases, lines of credit are accessed through transfers or withdrawals rather than through card payments at a checkout.

Which is better for building credit history?

Both types of credit products may contribute to credit reporting information if repayments are made on time. Credit reporting outcomes depend on repayment behaviour and other factors included in a credit report.

Should I pay off a credit card with a line of credit?

Some people consider consolidating debt if another product offers different repayment terms or interest rates. Before doing so, it is important to consider the full costs involved and whether the new arrangement is manageable.

Which usually has higher limits?

Credit limits vary widely depending on the lender, product type, and borrower circumstances. Both lines of credit and credit cards may offer different limits depending on the individual application.

Disclaimer

IPF Digital Australia Pty Ltd, trading as Credit24, ABN 59 130 894 405. Australian Credit Licence 422839.

The information in this article is general in nature and does not consider your objectives, financial situation, or needs. Lending criteria, fees, and charges apply. For product details, eligibility requirements, and full terms and conditions, visit www.credit24.com.au.