Fast and simple loan to make rental bonds and moving expenses simple.
But what exactly is a line of credit? How do they work? And how are they different from the good old personal loan or credit card?
We answer each of these questions and more below.
On this page:
A line of credit is a flexible product allowing you to access funds up to a predetermined credit limit as needed. It’s very similar to a credit card in that it functions as a revolving credit facility: you don’t have to draw down the total amount you’ve been approved to borrow and only have to pay interest on what you’ve used instead of the whole amount.
If, for example, you applied for a $2,000 line of credit and initially only needed to use $500, you wouldn’t have to pay interest on the remaining balance ($1,500) yet. A line of credit offers you flexibility in what you choose to borrow and how much you need to repay.
Since a line of credit is a flexible product, you can use it for almost anything in most cases, with a common reason being everyday expenses. If you need quick funds to pay for key items like groceries and fuel, a line of credit can provide the funds you need when you need them.
As long as you meet the eligibility criteria and qualify for the line of credit, you can also use one to pay for emergency expenses as they arise. For example, you could also use a line of credit to pay for an urgent car repair if you need your car to drive to work.
Lines of credit are very similar to other credit products, which means they also come with the usual: fees, interest rates, loan terms etc.
With a line of credit, the interest rate applies to the amount borrowed but is only charged on the balance used. Because of this, the interest rate on a line of credit is often higher than the typical personal loan or credit card.
You can also be charged the following common fees on a line of credit:
Note that each lender will have different fees and charges for each, and some won’t charge anything.
The approved credit limit for a line of credit can vary based on the lender's policies and the borrower's creditworthiness. These credit limits can range from a few thousand dollars to a higher amount, but you can often borrow just a few hundred dollars at a time, providing the flexibility to borrow as needed within the approved limit.
Line of credit loans generally follow a revolving credit structure, so there isn’t a set loan term initially. But once you draw down on the line of credit and use the funds, you’ll have to repay this amount within a specific period, often with a minimum monthly repayment.
A secured line of credit requires collateral, such as a home or other valuable asset, to back the credit limit. For this reason, secured lines of credit are often called home equity loans if you borrow a larger amount.
On the other hand, unsecured lines of credit do not require collateral, but they may have higher interest rates than secured options.
Two of the products a line of credit is most commonly compared to are personal loans and credit cards.
Personal loans provide a lump sum amount you receive upfront and repay in fixed instalments over a period set out in your loan contract, known as the loan term. You’re charged interest on the full amount from the get-go, compared to the line of credit only charging interest on the amount withdrawn.
Personal loans often come with higher maximum loan amounts than lines of credit, so you can use them for more significant expenses when needed.
Credit cards offer a revolving credit facility similar to a line of credit, and for all intents and purposes, are almost exactly the same thing. The key differences will lie in the interest rates, fees, credit limits and other loan terms, which can vary between providers.
All financial products have advantages and disadvantages, and lines of credit are no exception. We’ve outlined the pros and cons of a line of credit below.
The answer to this question will depend on your specific circumstances, but for the typical person, a line of credit could be the right option if:
On the other hand, if you need to borrow a larger amount for a bigger expense, such as a home renovation or wedding, you might be better off applying for a personal loan instead.
At Jacaranda Finance, you can borrow up to $25,000 and for as long as 36 months, with fixed interest rates to help you budget.
No matter which option you decide to go with, make sure you compare rates, fees, loan terms and more from different lenders, and decide which product best suits your own financial needs.
The information on this website is for general information only. It should not be taken as constituting professional advice from the website owner - Jacaranda Finance. Jacaranda Finance is not a financial adviser, and the content on this page does not take into account your objectives, financial situation or needs. You should consider seeking independent legal, financial, taxation or other advice to check how the website information relates to your unique circumstances.
Jacaranda Finance is not liable for any loss caused, whether due to negligence or otherwise arising from the use of, or reliance on, the information provided directly or indirectly by use of this website.