Every month, you’ll receive a statement listing your purchases, along with the minimum amount you need to pay by the due date to avoid penalties. You generally don’t have to pay the full balance every month, but any balance remaining on the account will begin to accrue interest based on your card’s annual percentage rate (APR). However, when you receive your statement, you’ll have a grace period to pay off your balance during which interest doesn’t accrue — often ranging from 21 to 25 days.
Credit cards are a convenient way to build credit while making everyday purchases.
What is a personal line of credit?
A personal line of credit is a revolving line of credit that you can only access for a fixed period of time. This is different from a credit card, which can typically be used indefinitely as long as your account remains in good standing.
When you open a personal line of credit, you’ll begin what’s called the draw period, which typically lasts about 5 years. During this time, you can borrow funds up to your credit limit and repay them to access more credit. As with a credit card, you don’t need to repay the entire balance every month—you’ll have the option to make a monthly minimum payment instead. It’s important to note that your balance will accrue interest without a grace period for a line of credit.
When your draw period ends, you’ll enter the repayment period, meaning you won’t be able to access your line of credit anymore. Instead, you’ll be responsible for paying off what you borrowed. The repayment period can last up to 7 years or more. Remember, even though you can’t withdraw more money, interest will still accrue on your remaining balance.
Personal lines of credit may be a good option if you have a large purchase coming up or expenses that require variable access to cash, such as home improvements, a wedding or emergency expenses.
How are credit cards and personal lines of credit similar?
In addition to both being forms of revolving credit, credit cards and personal lines of credit are similar in other ways:
Flexibility
Credit cards and personal lines of credit both allow you to use as much or as little of your credit as you’d like, making them a flexible option for spending.
Unsecured
Many credit cards and personal lines of credit are unsecured, which means you won’t have to use an asset like a house or car as collateral.
Interest policy
With both a credit card and personal line of credit, interest only accrues on the credit you use, not the full amount you’re authorized to borrow.
How are credit cards and personal lines of credit different?
When you’re weighing a line of credit vs. a credit card, there are many key differences to consider before applying:
Accessing funds
Typically, credit cards can be used directly during in-person or online transactions. Personal lines of credit, on the other hand, may provide you with cash directly through checks or direct transfers to your bank account.
Interest rates
Personal lines of credit may have lower interest rates than credit cards.
Earning rewards
Credit cards may have rewards programs that allow cardholders to earn cash back, hotel points or airline miles on purchases. Personal lines of credit typically do not offer these kinds of perks.
How does a personal line of credit or a credit card affect your credit?
When you apply for a personal line of credit or a credit card, the lender may perform a hard credit inquiry. These inquiries may affect your credit score slightly, so take time to consider whether applying is the right move for you.
Managing credit responsibly by making payments on time and keeping your credit utilization low can help improve your creditworthiness over time. This may help you qualify for higher credit limits or better interest rates in the future.
Choosing between a personal line of credit and a credit card
There’s no one-size-fits-all choice between a credit card and a personal line of credit. Both give you access to funds when needed, but your specific financial goals will determine what works best for you. Consider whether you need a set amount of funds for a large expense or if you’re just looking for an ongoing source of credit to help pay for regular purchases. Speak with a lender to learn what options are available to you.
Citi offers personal loans to existing Citi customers and new Citi customers that meet specific eligibility criteria, including an established credit and income history, along with additional factors. If you think you could benefit from a Citi® Personal Loan, apply online today.
This article is for educational purposes. It is not intended to provide legal, investment, or financial advice and is not a substitute for professional advice. It does not indicate the availability of any Citi product or service. For advice about your specific circumstances, you should consult a qualified professional.
