Difference Between Line of Credit, Credit Card & Loan (With Examples)

In the fast-paced financial world, we are spoilt for choice. Whether you want to buy the latest smartphone, renovate your home for Diwali, or just keep a safety net for medical emergencies, there is a financial product for every need.

But this abundance of choice brings confusion. You have Credit Cards in your wallet, offers for Personal Loans in your emails, and now, banks are offering something called a Line of Credit (LOC) directly on UPI apps.

Which one should you pick? Choosing the wrong one could mean paying 36% interest when you could have paid 12%. Or getting stuck with a fixed EMI when you needed flexible repayment.

If you have ever searched for the "difference between a line of credit and credit card", you are in the right place. This guide will decode these three borrowing tools with simple examples so you can borrow smart, save money, and stay stress-free.

Note: My Mudra is a marketplace that connects borrowers to RBI-registered banks/NBFCs. Final eligibility, approval, and interest rates are always decided by the lender.

Looking for the right financial fit? Don't guess. Explore borrowing options on My Mudra to connect with India’s top banks and NBFCs tailored to your profile.

What is a Line of Credit?

Think of a line of credit as a magical wallet that refills itself.

It is a flexible borrowing facility where a lender approves you for a specific limit (e.g., ₹5 lakhs). Unlike a personal loan, this money doesn't hit your bank account all at once. It sits in a loan account. You can withdraw ₹50,000 today, ₹20,000 next month, or nothing at all.

The Golden Rule: You only pay interest on the amount you use, not the total limit sanctioned.

Types of Line of Credit in India

1. Personal Line of Credit (Unsecured): Approved based on your salary and CIBIL score (700+). No collateral needed.

2. Secured Line of Credit: Offered against your Fixed Deposit (Overdraft) or Property. Interest rates are much lower here.

3. Credit Line on UPI: The 2026 game-changer. You can now link a pre-sanctioned credit line to your UPI app (like Google Pay or Paytm) and pay shopkeepers directly by scanning QR codes, without using a credit card. 

What is a Credit Card?

A credit card is the most common form of "revolving credit." It’s a plastic (or metal) card that lets you buy now and pay later.

How It Works:

• You get a credit limit (e.g., ₹1 Lakh).
• You have a Billing Cycle (usually 30 days) + a Grace Period (15-20 days).
• If you pay your full bill by the due date, you pay zero interest.

India-Specific Uses:

• Rewards: Earning cashback on grocery shopping or fuel.
• UPI Integration: In 2026, RuPay credit cards can be linked to UPI for scanning merchant QR codes.

The Risk (Debt Trap): If you only pay the "Minimum Due" (usually 5% of the bill), the remaining amount attracts a massive interest rate of 36% to 42% per year. This is why credit cards are great for spending but terrible for long-term borrowing.

What is a Personal Loan?

A personal loan is a versatile financial product that offers funds without requiring collateral or security. It is characterized by minimal documentation and can be used for a variety of purposes.

How It Works:

• Lump Sum: The bank gives you the entire sanctioned amount (e.g., ₹5 Lakhs) at once.
• Fixed Tenure: You must repay it over a fixed period (1 to 5 years).
• Fixed EMI: Your monthly payment is set in stone.

Use Cases in India:

• Weddings: Paying vendors who need cash upfront.
• Medical Emergency: When a hospital needs a large deposit immediately.
• Debt Consolidation: Taking a lower-interest personal loan to pay off a high-interest credit card bill.

Comparison Table: Line of Credit vs Credit Card vs Loan

Here is a quick snapshot to help you spot the difference between a line of credit and a loan at a glance.

Interest Rate Comparison: Line of Credit vs Credit Card vs Loan (2026 Market Trends)

Interest rates are the "price" of money. Here is what you can expect in the current Indian market.

1. Personal Loan: 10.50% - 24% p.a.

• Lowest for: Salaried employees with 750+ CIBIL score.

2. Line of Credit: 12% - 19% p.a. (Unsecured)

• Note: Secured LOC (Loan Against FD) is much cheaper, often FD Rate + 1% (approx 8-9%).

3. Credit Card: 30% - 42% p.a. (APR)

• Warning: This only kicks in if you miss the full payment by the due date. Cash withdrawals from ATMs using a credit card also attract this rate from Day 1.

Note: These are indicative ranges. Your actual rate depends on your credit score and the lender you connect with via My Mudra.

Real-Life Scenarios: Which One Fits You?

Let’s solve the line of credit vs credit card confusion with real stories.

Scenario 1: The Freelancer (Flexible Cashflow)

• Problem: Vikram is a freelance video editor. He has expenses every month, but clients pay him late.
• Best Choice: Personal Line of Credit.
• Why: He can withdraw money to pay rent on the 1st and repay it on the 15th when clients pay. He pays interest for just 15 days. A personal loan would be too rigid; a credit card cash withdrawal would be too expensive.

Scenario 2: The Student (Daily Spends)

• Problem: Priya needs to buy books, pay for metro rides, and order food.
• Best Choice: Credit Card (Entry Level).
• Why: She earns reward points on every spend. As long as she pays the full bill by the due date, it’s effectively an interest-free loan for 45 days.

Scenario 3: The Medical Emergency

• Problem: Rajesh needs ₹4 Lakhs for a planned surgery next month.
• Best Choice: Personal Loan.
• Why: The expense is one-time and fixed. A personal loan offers a lower interest rate (approx 11-12%) than an unsecured line of credit, saving him money over a 3-year repayment term.

Scenario 4: The Shopkeeper (Inventory)

• Problem: Sunita runs a boutique. She needs to buy extra stock for Diwali, but isn't sure if she needs ₹2 Lakhs or ₹5 Lakhs.
• Best Choice: Business Line of Credit.
• Why: She gets approved for ₹5 Lakhs but only withdraws what she needs for the stock. If sales are good, she repays quickly and saves on interest.

Key Differences of Line of Credit vs Credit Card vs Loan Explained Simply

1. Difference between Line of Credit and Credit Card

• Usage: Credit cards are best for transactions (swiping at a store). Lines of credit are best for cash (transferring to your bank account).
• Cost: If you need cash, a line of credit is significantly cheaper (14% vs 40%).
• Rewards: Credit cards give points/cashback; LOCs usually don't.

2. Difference between Line of Credit and Loan

• Disbursal: A loan gives you the full money at once. A LOC sits in your account waiting for you to use it.
• Interest: On a loan, you pay interest on the full amount. On a LOC, you pay interest only on what you withdraw.
• Certainty: Use a loan when you know the exact cost (e.g., buying a car). Use a LOC when the cost is uncertain (e.g., home renovation).

When Should You Choose Which?

Here is your cheat sheet for decision-making.

Benefits & Limitations of Line of Credit vs Credit Card vs Loan

1. Line of Credit

• Benefit: Pay interest only on the used amount. Perfect backup for "just in case".
• Limitation: Variable line of credit interest rates. Requires discipline—it's easy to treat it like "free money".

2. Credit Card

• Benefit: 45-day interest-free period. Rewards and lounge access.
• Limitation: The highest interest rates in the market if you miss a payment. Cash withdrawals are costly.

3. Personal Loan

• Benefit: Forced discipline via fixed EMIs. Generally, lower interest rates for good credit scores.
• Limitation: No flexibility. You can't prepay without penalties (usually) or re-borrow the paid amount.

How to Apply for Line of Credit vs Credit Card vs Loan

Digital KYC makes it quicker than ever to get approved in 2026. Eligibility Basics:

Eligibility Basics:

• Age: From 21 to 58 years. 
• Income: At least ₹15,000/month (for salaried persons) or ITR filing (for self-employed persons).
• Credit Score: 700+ is the best for unsecured options.

Documents (Digital Scans):

• ID: PAN Card & Aadhaar.
• Income: 3 months' bank statements (or net banking access for "Account Aggregator" verification). 

Do you want to get started? It is possible to apply for a line of credit online or check your eligibility for a personal loan through My Mudra.

Note: My Mudra is a marketplace that connects you with RBI-registered lenders. We do not lend money directly.

Final Summary

Choosing between a line of credit vs a credit card or a line of credit vs personal loan comes down to one question: Why do you need the money?

• For Shopping & Rewards: Stick to your Credit Card (and pay the full bill!).
• For Fixed, Large Needs: A Personal Loan is your cheapest, most structured bet.
• For Flexibility & Cash Flow: A Line of Credit is the modern winner, letting you borrow only what you need and pay only for what you use.

Still unsure? Don't worry. You don't have to navigate this alone. Explore your Line of Credit or Personal Loan options with My Mudra today. We help you compare offers from India's top lenders so you can borrow with confidence.