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Credit Card or Line of Credit?

post #1 of 28
Thread Starter 
Which is better?

I currently have a credit card...and I just got a letter that I am approved for a line of credit and it has a 1% lower interest rate..of course the limit is way higher which I don't really need...

Can anyone tell me the main differences between the two? I have no idea.

Thanks.
post #2 of 28
I don't know what a line of credit is either.
post #3 of 28
Sorry can't help you. But I just wanted to say that I own NO credit cards and I never will again. I made that mistake and in 7 months it will be paid off completely. Never again! I have a debit card. If the money isn't in the bank I don't get it.
post #4 of 28
Thread Starter 
Quote:
Originally Posted by Jenny82 View Post
I don't know what a line of credit is either.
Hmm, I wonder if its a Canadian thing?
post #5 of 28
We have credit cards plus we have a line of credit that is backed by our house.
Its also a credit card and a we set it up for a high five figure line. So if we want to say buy a car or a motorcycle or something we just use this like a credit vard to get the money-no other loan paperwork required.
Since the loan is backed by our house the interest is deductible.
post #6 of 28
A line of credit is more like an overdraft on your bank account and you have a debit card for it (although some banks have a revolving loan where when you put money in it takes it into the loan account and it gets confusing and you end up having less in your account than you think)
The credit card provides a little more security as far as purchases
post #7 of 28
With many lines of credit your may have a repayment term and the invoice they send could only show the interest due. Sometimes you have to come up with your own payment schedule as many financial institutions would like you to pay forever on the note.
post #8 of 28
I had a line of credit when I was in college. It is basically a loan with a fixed interest rate. Mine was a student line of credit so there was a very low interest rate that didn't kick in until I finnished school. I paid it off last year and currently have 1 credit card that I barely use. Credit cards tend to have a higher interest rate.
post #9 of 28
I had a line of credit when I was going to school and the interest rate was lower than my credit card. They give a better deal on the line of credit though when it's for education purposes though.
post #10 of 28
Thread Starter 
I can't decide whether to switch to the line of credit for 1% less interest
post #11 of 28
before making a decision, I would speak to the company offering it and find out what the repayment terms are etc before deciding, also what the min payment is on it as they may require you to deposit x amount to keep it current
post #12 of 28
Thanks for the explanations!
post #13 of 28
Lines of credit tend to give you more and expect more out of you (ie, you can get more $, but your monthly minimum payment will often be higher than it would be with a creditcard)
How much credit do you have/need? If we are talking a small amount, a few thousand dollars, a 1% interest difference is slight. If you owe $25000 in credit card debt, you could save like $300 a yearish.
I bet if you call your current credit card company, tell themyou have another company offering you 1% lower interest, they will offer you the same (unless you are ahem, not the best at keeping up with payments). Credit card companies want to keep your business not lose it, so doing this migt even sweeten the deal (I had a card drop from 18% interest to 13.5, as I was offered a 14% card from a different bank by doing just this)
post #14 of 28
I used to work at a bank so here's the best explanation I can give: A credit card is revolving and reusable. A line of credit is a loan that is established and then paid off. It can be reusable, but it's going to depend on if the bank wants to re-extend it to you. Let me list the pros and cons for you, and what you should look for:

Pro: It should have some sort of a term that allows you to pay off your debit with in a specific period of time. This term can be set anywhere from 1-5 years. You will have a predictable monthly payment that isn't going to flux like a credit card. Depending on the terms of the line you may be able to reuse it.

Cons: You can NEVER miss a payment. If you do the interest rate will go up. You'll have to close your credit card completely, because these types of loans are normally used to pay off debit. The interest rates tend to be higher because they aren't secured against something like a home or a car.

What to look for: A FIXED rate. Make sure you don't get something with a variable interest rate, this can really screw up your payment schedule. Make sure it's a term loan, meaning, that you have a set period of time to pay it.

To be quite honest with you, I'd stick with a credit card. You've got a lot more room to negotiate with the bank of something happens. Lines of credit can be a lot more trouble than they are worth.

Hope that helps honey!
post #15 of 28
Thread Starter 
Quote:
Originally Posted by lookingglass View Post
I used to work at a bank so here's the best explanation I can give: A credit card is revolving and reusable. A line of credit is a loan that is established and then paid off. It can be reusable, but it's going to depend on if the bank wants to re-extend it to you. Let me list the pros and cons for you, and what you should look for:

Pro: It should have some sort of a term that allows you to pay off your debit with in a specific period of time. This term can be set anywhere from 1-5 years. You will have a predictable monthly payment that isn't going to flux like a credit card. Depending on the terms of the line you may be able to reuse it.

Cons: You can NEVER miss a payment. If you do the interest rate will go up. You'll have to close your credit card completely, because these types of loans are normally used to pay off debit. The interest rates tend to be higher because they aren't secured against something like a home or a car.

What to look for: A FIXED rate. Make sure you don't get something with a variable interest rate, this can really screw up your payment schedule. Make sure it's a term loan, meaning, that you have a set period of time to pay it.

To be quite honest with you, I'd stick with a credit card. You've got a lot more room to negotiate with the bank of something happens. Lines of credit can be a lot more trouble than they are worth.

Hope that helps honey!
Great advice Lookingglass!! Thanks..I was looking for someone to tell what I should do, and you did I don't have a large enough balance that 1% would make a difference anyway I don't think.
post #16 of 28
Quote:
Originally Posted by Trouts mom View Post
Great advice Lookingglass!! Thanks..I was looking for someone to tell what I should do, and you did I don't have a large enough balance that 1% would make a difference anyway I don't think.
You made a really good point there. If you don't have enough debit for it to make a difference then don't do it.
post #17 of 28
Quote:
Originally Posted by lookingglass View Post
You made a really good point there. If you don't have enough debit for it to make a difference then don't do it.
post #18 of 28
Here is some information on "line of credit"

http://www.wisegeek.com/what-is-a-line-of-credit.htm

There is no difference between a line of credit and a credit card. Both calculate interest against your "average daily balance" and both show on your credit report equally. Absolutely go with the one with the better reputation of consistent rates and obviously the better rate.

Rates are the key. Line of credit is more convenient, but the credit cards give you more flexibility to shop in other places.

Personally, I've learned that it's better to pay cash for things and to avoid debt completely, unless you are talking big ticket items such as a house. Even cars shouldn't be financed. If you can't afford a new car, save up and pay cash for an older one.
post #19 of 28
I do know that there are different types of line of credit accounts. So all the responses that describe them are probably accurate. The devil is in the details. I had a line of credit against my house and could opening extend the loan anytime I wanted up to its limit. I used it mostly for home improvements (new windows, siding, roof), but it caught me when I went to sell that house. Even though the balance had been paid in full for 7 years, it was still considered a lien against the property and I had to formally close it before I could close on the sale of the house. It took a couple days to clear it up.
post #20 of 28
I don't have a line of credit but I do have a low limit credit card. I like it because sometimes I like to buy things online and some things (like hotel rooms) you need a credit card to book.
post #21 of 28
Linda - just wondering why you bumped this after two years?
post #22 of 28
Quote:
Originally Posted by WellingtonCats View Post
Linda - just wondering why you bumped this after two years?
I didn't. It was on the first page of the forum. I thought it was new until you pointed out that it was a 2 year old thread.
post #23 of 28
Quote:
Originally Posted by WellingtonCats View Post
Linda - just wondering why you bumped this after two years?
It was bumped by a spammer.
post #24 of 28
Quote:
Originally Posted by Yosemite View Post
It was bumped by a spammer.
Thank God for that! I thought I was losing my mind!
post #25 of 28
I believe a line of credit is the amount you can use on your credit card. You can not spend more than your line of credit allows.
post #26 of 28
Quote:
Originally Posted by LaRussa View Post
I believe a line of credit is the amount you can use on your credit card. You can not spend more than your line of credit allows.
Actually that would be your credit limit on the card. A line of credit is a whole different animal.

We have a line of credit from our bank for up to $75,000 so that if (and when) we decide to do some more renovations we have the monies available. Should we borrow from that line of credit all we are required to pay monthly is the interest. The principal can stay outstanding for years. The interest on the line of credit is also less than a loan from the bank.
post #27 of 28
Quote:
Originally Posted by Natalie_ca View Post
I didn't. It was on the first page of the forum. I thought it was new until you pointed out that it was a 2 year old thread.
Quote:
Originally Posted by Yosemite View Post
It was bumped by a spammer.
Oh! Sorry Linda!
post #28 of 28
Quote:
Originally Posted by WellingtonCats View Post
Oh! Sorry Linda!
No apology needed

This is proving to be a popular thread again.
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