# Line of credit vs. credit card in Canada: what to compare
Start with the transaction, not the product name. With an eligible credit-card purchase, you can avoid interest by paying the statement balance in full by the payment due date. Cash advances, cash-like transactions and balance transfers have no interest-free grace period. A line of credit generally charges interest from the day you withdraw money. Your actual rate, fees and repayment terms determine the comparison.
The differences that change the decision
How you use the credit
- Line of credit: draw funds up to a limit, such as by transfer or bill payment, depending on the account.
- Credit card: pay for purchases; the same card may also allow cash advances or balance transfers.
When interest starts
- Line of credit: generally from the day you withdraw money until you repay it.
- Credit card: eligible purchases may receive a grace period when the statement balance is paid in full by the payment due date. Cash advances, cash-like transactions and balance transfers do not.
Which rate and fees apply
- Line of credit: the rate is usually variable; registration or administration fees may apply.
- Credit card: rates can differ for purchases, cash advances and balance transfers; annual and transaction fees may apply.
What the minimum payment accomplishes
- Line of credit: a monthly minimum is required and may be only the monthly interest, leaving principal unpaid.
- Credit card: a minimum payment is due by the payment due date. Carrying a balance generally means paying interest.
Sources: FCAC on lines of credit, how credit cards work and choosing a credit card.
Identify the transaction first
For a card, decide whether the expense will be treated as a purchase, cash advance, cash-like transaction or balance transfer. The classification changes when interest starts and which rate or fee applies. Check the agreement or ask the issuer before using the card if the classification is unclear.
For a line of credit, check the current rate, whether it can change, any fees and the required minimum. FCAC says a line of credit usually has a lower rate than a credit card, but that general pattern does not replace your two actual agreements. If the line is secured by an asset and you do not repay what you owe, the lender may take the collateral.
Read four fields in your own agreements
1. Applicable transaction and rate. Use the rate for the transaction you will actually make, rather than the card's headline purchase rate.
2. Interest start date. Confirm whether a purchase grace period applies or interest starts immediately.
3. Every required fee. Check annual, administration, cash-advance, balance-transfer and other applicable charges without assuming they are included in the rate.
4. Repayment path. Note the minimum due, how much reduces principal and what happens if a variable rate rises. Paying only a line of credit's interest does not pay down the amount borrowed.
Then test the payment against money available after essentials and existing obligations. FCAC recommends considering how much you can afford, whether the expense can wait, what happens if a rate rises and the consequences of missing a payment. Ask the lender to explain anything unclear before borrowing. See FCAC's before-borrowing guidance.
If you are comparing written offers rather than only these two product types, use Romii's small-borrowing comparison guide to compare net cash, total dollar cost and repayment dates. This article is general education, not a recommendation of either product.