Personal Line of Credit vs Credit Card

My personal line of credit is all set up. I tested it by making a transfer from it in the morning and transferring the money back in the afternoon. I don’t think I will owe any interest that way. It worked as advertised.

A personal line of credit and a credit card are both unsecured open-end ("revolving") credit products. In a nutshell, a personal line of credit is like a credit card without a grace period or rewards, but with better cash advance features. Lines of credit are very common for businesses whereas credit cards are more common for individuals (there are also business credit cards). Based on my own personal line of credit with Wells Fargo and my three credit cards from American Express, Chase, and FIA Card Services (Bank of America), I summarize the differences in the table below. Red indicates inferior product features.

  Personal Line of Credit Credit Card
Secured No No
Document income for application Yes No
Purchase Yes, by check or card Yes
Grace Period No Purchase: 20 – 56 days 
Cash advance: No
Credit Limit Lower Higher
Credit limit for cash advance 100% 20%
Cash Advance Fee None 3%, min. $10
Rewards No Purchase: Yes
Cash advance: No
Annual Fee Waived No
Interest Rate Prime + 8.5% Purchase: Prime + 6-10%
Cash Advance: Prime + 16-22%

Generally speaking, a credit card is better for purchases. A personal line of credit is better for cash advance. Banks don’t advertise personal lines of credit as much as they do for credit cards. Perhaps that’s why more people don’t know about it.

Because I, like half of all credit card users, and I hope 100% of my readers, don’t carry a balance on my credit cards, I never paid attention to the APRs on my cards. Now that I think about it, I wonder why credit card companies are so much against cash advance. First they give you only 20% of the purchase credit limit for cash advance. Then they charge you 3% cash advance fee plus a much higher interest rate, with no grace period. They obviously see cash advance as more risky than purchases. Right now you can charge almost everything on a credit card. What can you do with a cash advance but you can’t charge as a purchase? I can think of paying rent, paying other loans, and paying taxes, although it is possible to pay mortgage with a credit card for free. What else?

Not all banks offer personal lines of credit (at least they don’t advertise it online). Almost every bank offers Home Equity Loan, Home Equity Line of Credit (HELOC), auto loans, and loans for motorcycle, RV or boat. These are all secured loans. For personal, unsecured revolving loans, some banks basically just push the credit cards. Using my Top 10 Banks list, here’s what I found from each one.

  Offers unsecured personal line of credit?
Bank of America No
Chase No
Wells Fargo Yes
Citibank Yes
PNC Bank Yes
U.S. Bank Yes
SunTrust Bank No
Citizens Bank No
Capital One Yes
Regions Bank Yes

Four of the top 10 banks don’t offer unsecured personal line of credit or at least they don’t advertise it on their web site. Note the top two banks, Bank of America and Chase, are also the biggest credit card issuers. I also checked a few credit unions around me. They all offer the personal line of credit product. Large, popular credit unions like PenFed, Navy Fed, and Alliant CU have it too. I guess by tradition personal line of credit is more common in credit unions than in banks.

Elsewhere on the web:

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Comments

  1. Rick says

    TFB,

    I applied for $1,500 and rec’d an instant (+) answer at Navy Fed for a NAVchek┬« Line of Credit. I wasn’t considering the benefits you’ve mentioned but wanted the overdraft protection for my checking account. I picked $1,500 because my largest payment each month is my mortgage and if I needed to reallocated those funds elsewhere, I could always make the mortgage payment. (re. Emergency-Proof Your Emergency Fund). – Rick

  2. keisha says

    To whom it may concern i feel if you have poor credit you should be giving a second chance on your credit i brought a car about 3 yrs ago my husband went to go look at thr truck and i like it but i just found out since he head of the signing that his credit scored is good but mine is still the same pooor and he get all the benifit from me for making my car payment on time i just some could he me build my credit i desevered a second chance of a line of credit thank

    • Kick says

      Keisha – please tell me you’re foreign. If English is your second language, I respect your post. If you are an American, PLEASE FOR THE LOVE OF SOCIETY take a grammar lesson.

  3. Ranjit says

    Great article. Thanks for the info.
    My question is – Is it possible to get a secured line of credit backed by CD or Savings account.?

    • Reed says

      First Bank and Trust (www.fbtonline.com) offers one that is 2% + interest rate on the CD or Savings Account securing it.

  4. andrea says

    This is a wonderful article. I will check the links you provided.

    I am from Canada where personal unsecured Lines of Credit are commonplace. I owned a $15,000 Lines of Credit at a large Canadian bank. The money was meant for emergency use only. Interest was very low, prime plus 2% and re-payment was 2% of balance.

    When I moved to the USA, I was shocked that Personal Lines of Credit were not available at our own bank, but that I could qualify for a $28,000 Credit Card far more easily.

  5. NadineParkes says

    I have good credit score but poor credit history. Is it better for me to apply for a line of credit or a secured credit card. Which is better? and which will look better on my credit score. I was just denied a loan because of poor credit history, although the three credit companied scored me to be over 700. I am very new to this credit thing I need all the advise I can get. I only have a macy’s card.

  6. says

    @NadineParkes – Because a line of credit is usually harder to get and you would have to pay interest if you draw from the credit line, I think a secured credit card is better. You will build credit history when you use the card and you always pay it back in full, on time.

  7. joyce bequeaith says

    I resently tried to take my line of credit back up to where it had been. and was told I could do it. but then I got a letter in the mail telling me No. because my husband had died 2 years ago.and they were no longer doing that and becasuse he was on the orginal agreement.Now they knew he had died because I supplied the death certificate. but then I though they had reconsiderated becuse I was sent checks with a line of credit. stamped on them .So I was very happy because I now could get my car fixed. No way!! they took the money back out of my acount. Now I have been paying this for the last 2 years and paying a little more each month and always on time. now if this is the case, I have paid more then half so I would assume that I am paid off. Right?? I don’t think I owe this.

  8. Eddie says

    I enjoyed reading your article and just wanted to let you know that Bank Of America does offer a personal line of credit. It’s called Gold Option. I’ve had it for several years.

  9. Mingo says

    I was looking for a product that will build my credit the quickies, I was thinking a secure line of credit or a secured credit card. Which one do you think will do the best job. Thank you.

  10. Helena says

    SunTrust offers 3 options for a personal line of credit. The first is up to $25,000, the second is up to $250,000 and can be used as an alternative to home loans, and the third is up to $500 and requires collateral. The first two do not require collateral. People with credit scores in the 600s have reported being approved for these lines of credit provided they have a valid and good-standing relationship with the bank.

    -Something to check out. https://www.suntrust.com/PersonalBanking/Loans/PersonalLinesOfCredit

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