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Understanding the difference between a credit card and a line of credit is essential for making smarter borrowing decisions. While both offer flexible access to funds, they function in distinct ways that can impact how you manage debt, pay interest, and build your credit profile. Whether you are covering everyday expenses or planning for larger financial needs, knowing how each option works - and when to use it - can help you stay in control of your finances and avoid unnecessary costs.
People have been borrowing money and taking out credit for decades – in fact, in 1728 the first overdraft was granted when a bank allowed a man to withdraw more money from his bank account than he had in available funds. Other forms of credit soon followed and in the twenty-first century, the majority of the UK adult population either uses credit on a daily basis or has some form of debt to be repaid, be it car finance, a student loan or even a mortgage.
There are now many forms of credit available in the UK finance market. From payday loans to home equity, from overdrafts to credit cards: there is almost definitely a type of credit product to suit any circumstance. As technology improves and demands change, creditors adapt to offer different products and services to meet those ever-changing needs. One of the more recent credit products to grace the financial services market is the credit line.
A credit line is a credit account which you can draw from at any time, up to your credit limit. Like a credit card, a credit line allows you to manage your cashflow from month to month, meet unexpected bills and pay for occasional unbudgeted purchases like birthday presents or weekends away.
A credit line is an ongoing line of credit which remains accessible throughout your credit agreement. Instead of a loan where you must submit an application each time you wish to borrow, a credit line only requires one application. If approved, you can withdraw funds, up to your credit limit, and the money will be transferred directly into your bank account, usually within minutes.
You repay the funds that you borrowed at the end of the month, or you can make a minimum payment if you don’t want to settle the balance in full, and you only pay for the credit that you use. This means, you will only accrue interest on the amount of money you have withdrawn.
A credit card is a more widely used form of revolving credit. They function much in the same way as credit lines, but instead of withdrawing funds into your bank account, you will be supplied with a physical credit card which you use to make transactions. You will only pay interest on the amount that you borrow and if you are not able to settle your balance in full each month, you have the option of making a minimum payment instead.
There are a few main similarities between a credit card and a credit line, and these include:
Your credit limit will be determined when you make an application for a credit line. In the same way a credit card provider will do a creditworthiness and affordability assessment, so will a credit line provider because they have to make sure that their lending decision is responsible and that your borrowing is affordable in your financial circumstances.
One of the reasons credit cards are so popular is because you have the option of only making a minimum payment if you cannot afford to repay your balance in full at the end of your statement period, and the same goes for credit lines. At Polar Credit, we understand the importance of having a flexible repayment system which is why you can make your minimum payment one month, repay your full balance the next or simply make additional payments throughout the month to help reduce your total balance.
Credit lines do differ from credit cards in some ways, and for some people these differences make credit lines much more convenient:
When you withdraw cash from your credit line, the money is transferred directly into your bank account which means you can spend it using your usual debit card, or you can withdraw cash at an ATM without being charged a premium (usually about 3% or £3 if you withdraw cash from a credit card). As long as your bank supports the faster payments service (FPS), the funds will be in your bank account straightaway and your available credit updates instantly, so you are not left waiting for your credit card statement to finally update online to know what your current balance is.
There are several advantages to both a credit card and a credit line (and of course, there are disadvantages to both too) but they are also quite similar products too so it will depend on the provider as to why one product might be better than the other.
It remains difficult to compare different credit products, other than by interest rate, because each product is designed to meet a different market, a different demographic and usually a different borrowing need. For example, a personal loan from a bank may be used to buy a car or complete a kitchen renovation; a mortgage is used to buy a house and overdrafts, credit cards and credit lines tend to be used for more day to day purchases and cashflow management.
In order to decide whether you should apply for a credit card or a credit line, there are a few questions you can ask yourself:
It is always advisable to compare interest rates when choosing to apply for credit because you should aim to take out the credit with the lowest interest rate. However, interest rates are only given as a percentage figure which means the actual amount you repay depends on how much you borrow. For example, if you borrow £1000 at 10% APR, this means you will owe approximately £1100 at the end of a 12 month period, assuming you’ve made no interim payments. If you borrow £100 at 10% APR, you will owe around £110 at the end of the 12 month period. Although the interest rate is the same, you will repay less interest overall if you borrow £100 because the amount the interest is applied to is so much less. It is good to check the representative example on a firm’s website in order to gain an awareness of how much your borrowing may cost in terms of actual money.
The purpose of the credit product is vital when considering whether to choose between a credit card or a credit line. This is because the main difference between them is how the transactions are made. With a credit card, you use a card to make payments, and with a credit line, you will use your normal debit card to make payments. As a credit line means the money is transferred to your bank account, you can also make standing orders, bank transfers and direct debits with credit line credit, options that are not available with a credit card. So, if you generally need financial support to meet direct debits from time to time, then a credit line might be a more suitable form of credit. However, if you intend to make large purchases like a holiday, then a credit card can offer more consumer protections and help you get your money back if something goes wrong.
The terms and conditions form an important role in establishing a suitable credit product. Among other things, the interest rate applied to your credit card or credit line could be subject to change. Often, a credit card company will offer a low interest rate to entice new customers, which expires after a set period of time. For example, they may offer a 0% interest rate credit card for six months, after which the interest rate could rise to 35% APR. If you’re not careful, you could suddenly find yourself with a hefty balance to repay.
Unlike having a credit card where your interest rate may increase, having a credit line with Polar Credit means your interest rate will actually go down the longer you borrow with us. Polar Credit aims to provide a credit line which promotes sustainable credit usage so you can manage your finances and be rewarded for your responsible borrowing.
Some credit card companies may offer rewards for customer loyalty so researching both options prior to applying is advisable. While we provide a credit line service, we would never encourage someone to apply for a Polar Credit line if it is not a suitable credit product in their circumstances.
It is also important to remember that whenever you consider using credit products, you should always take into account what exactly you need the credit for. If you find yourself consistently in your overdraft or frequently looking at other borrowing options to help with day to day living expenses, then you may need to look at your budget and start reducing costs where possible. No one should have to be permanently in debt, and if you find yourself leaning that way, it might be worth getting in touch with a free debt advice service such as National Debtline.
A Polar Credit Line works in the same way as any other credit line, with the added bonus of our proactive commitment to reduce your cost of borrowing over time. We will reduce your interest rate at your one year anniversary with us and then every six months thereafter until your interest rate reaches our minimum 29.9% pa, which is the same as most mainstream credit cards. This is because we feel that responsible borrowing and customer loyalty should be rewarded.
As well as same day approvals, fund transfers in minutes and accessibility 24/7, we want to make sure that our credit line is a sustainable credit product which helps you manage your cashflow from time to time without becoming another financial burden. You can find out more about a Polar Credit Line and our commitment to credit sustainability using the resources below.
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