Why Lines of Credit Are Often Better than Credit Cards?

With or without the current Covid-19 pandemic, it can sometimes be close to impossible to keep up with all your monthly expenses. While there is always the option of reducing these expenses, budgeting your finances and looking for a secondary source of income, these may not be enough in some cases. As a result, the go-to solution of most people is to get a credit card and to use it when the money runs out or when they have to make large purchases that would otherwise require instalment payments. This having been said, as useful as credit cards may be, they do come with several major disadvantages. They have large interest rates, the terms and conditions usually favour the lender, not the borrower, and using them too often can cause serious damage to an individual’s credit rating. Luckily, there are better ways to gain access to large amounts of money that can be used on-demand. Lines of credit have become increasingly accessible in the last few years and are now almost as popular as credit cards. So, why are they better than regular credit cards?

The Pros and Cons of Credit Cards

The Good

  • Credit cards have been around for many years and are considered some of the most reliable ways to borrow money on-demand. As a result, most lenders include them in their regular offers;
  • There are currently many online and physical stores that offer discounts to individuals who pay for their purchases using certain credit cards such as Visa or MasterCard;
  • Maxing out a credit card does not limit the borrower. Lenders regularly offer credit extensions to those who need more money than their current limit allows;
  • Most lenders offer discounts and credit extensions during the holidays to make it easier for individuals to purchase presents;

The Bad

  • Credit cards come with high interest rates that can sometimes make them prohibitively expensive. This is especially apparent when purchasing products that have high values;
  • Using them can have a serious negative impact on an individual’s credit rating. Using credit cards too often can lower a borrower’s credit score, as can having a credit utilization ratio that is higher than 30%. This can also affect an individual’s ability to get loans in the near future;

The Pros and Cons of Lines Of Credit

Lines of credit are becoming increasingly easy to get and are often much more affordable than credit cards and even personal loans. Furthermore, they work in the same way that credit cards do. The borrower gains access to a very large amount of money and only pays interest for what he withdraws.

The Good

  • Lines of credit have very low interest rates, especially if they are secured. This makes them more affordable in the long run;
  • They have much higher borrowing limits. Lines of credit are designed for very large expenses, and as a result, they can enable individuals to borrow considerably more money than what they could through a credit card. In the case of secured lines of credit such as HELOCs, the borrowing limit is almost equal to that of the property that is offered as collateral;
  • The terms of lines of credit are longer than those of credit cards. Furthermore, once a line of credit agreement has been signed, it is treated as a loan, not an ongoing service. This means that the lender will not be able to make any modifications to it;
  • Using a line of credit can increase an individual’s credit rating, not lower it;

The Bad

  • Lines of credit are often secured, which means that lenders need to offer collateral to apply for one;
  • No discounts or bonuses. Lenders do not offer any type of seasonal discounts, nor do stores;

Overview

Lines of credit are great for ongoing expenses such as home renovation projects and medical treatments, however, they are also useful when used as large-value credit cards. The small interest rates that these loans have made them extremely affordable and using them regularly does not harm an individual’s credit rating.