Is a credit card more beneficial than a line of credit?

You always need money for either buying a new house, financing your child’s education, or other requirements. However, certain dire situations call for the need of lump-sum amount which you may not be able to obtain right away.

Thus, make sure you fill a credit card application form and avail its benefits like emergency loans from financial institutions. For example, Bajaj Finserv makes the process of availing a credit card simple with its pre-approved offers. These offers are also available on home loans, personal loans or education loans along with other financial products and services. You only need to furnish some personal details to check out your pre-approved offers.

However, you can also go for options like a line of credit when you’re in dire need of money other than choosing the best credit card available in the market. So, let’s know more about the concept of a line of credit.

What is a line of credit?

In simple terms, a line of credit is much like a credit card. However, it misses some of the typical features of the best credit card like reward points and cashbacks.
A lending institution approves a definite credit limit when you apply for a line of credit. It is usually of two kinds, and the eligibility for the line of credit depends on the type of advances you apply.

(a) Unsecured line of credit
The one that doesn’t require any collateral to get approval from your lending institution is the unsecured line of credit. Here, the most determining factors are your CIBIL score, credit history, and your monthly flow of income among other things.

(b) Secured line of credit
In cases of a secured line of credit, the financial organisation sanctions your credit limit on the basis of your assets. It may include inventories, properties, FDs, etc. Lenders often prefer this particular line of credit since the risk factor is minimum.

An unsecured line of credit is less recommendable for borrowers as they don’t offer many desirable terms since there’s always a chance a non-payment in this case.
Now you must be confused about whether to avail a line of credit or meet the credit card eligibility criteria to apply for one. You’ll understand it better when you compare the two.

Differences between a credit card and line of credit

1. Cash withdrawal

In case you avail a line of credit, the approved limit is credited in your account, and you can withdraw it from ATM whenever you need cash. Also, you can withdraw the entire amount if you want to. But, cash withdrawal using credit card comes with huge interest charges. You also can’t withdraw the whole amount of your available credit limit.
However, Bajaj Finserv RBL Bank SuperCard has some of the best credit card features including interest-free cash withdrawal from ATM. You don’t have to pay any extra charges if you deposit the withdrawn amount within 50 days.

2. Reward points and cashbacks

You often choose credit cards depending on your spending pattern. Hence, you get more reward points, travel miles, bonuses, cashbacks, and fuel surcharge waiver with credit cards.

However, you don’t get any reward points, discounts or cashbacks when you use your line of credit.

3. Interest charges

In case of a line of credit, the lending institution charges interests after you use the money from your account. And, they levy interest only on the amount utilised. But, you have to pay the company that specific rate of interest throughout the credit tenure.

However, you get a period of 45-50 days to make your repayments when you use your credit card. The billing cycle of credit cards usually consists of 30 days, and you get extra 15-20 days to make your payments. The most significant advantage of all is you don’t have to pay any interest for these 45 days.

Hence, it is evident that filling up a credit card application is more beneficial than applying for a line of credit. Perks like reward points and security are higher when you go for a credit card. Applying for these cards is also easier as you need basic credit card eligibility criteria.