Line of credit vs overdraft

Line of credit or overdraft? Look at the features to help you choose the one that's right for you.

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Fact checked

Personal lines of credit and overdrafts are both flexible and convenient financing alternatives to standard personal loans and credit cards. However, they share many similarities and are often thought to be the same product.

In this guide below, we'll explain what they are and how they differ so you can choose the option that is right for you.

What are lines of credit and overdrafts?

A line of credit is a personal loan that gives you access to a specified credit limit. It allows you to withdraw up to and including that limit.

An overdraft account is a special line of credit that's attached to your existing transaction account. You have access to a certain amount of credit that becomes available when you exhaust all the funds in your transaction account.

What are the main differences?

Line of creditOverdraft
CostsInterest rates vary, but you will only pay interest on your balance, not your credit limit. Establishment fees may apply.Overdrafts are unsecured, so variable rates generally apply. You will only pay interest on your outstanding balance, but you can expect monthly or annual fees on the account. An establishment fee may also apply.
Loan termYou generally have a choice between an ongoing line of credit, where you can keep the account open as long as it’s in good standing, or one with a fixed term, generally between one and five years.An overdraft account does not usually have fixed repayment terms. Your account will be ongoing as long as you keep making regular repayments.
Availability & accessEligibility criteria will vary, but lines of credit are generally available to those with good credit who can afford the repayments. Lenders generally provide a debit card that you can use to access your line of credit.You will need to be an existing account holder or looking to open a transaction account with the bank to open an overdraft. You can then access your overdraft automatically when your transaction account funds have been exhausted.

How to choose which one is right for you

If you’re wondering which of the two accounts will best meet your needs, you can ask yourself the following questions:

How and when will I need access to the funds?
A line of credit will give you access to funds when you need it, but an overdraft can only be accessed when your own funds have been used up. This is an important point to keep in mind.

Do I need an "emergency" account?
Overdrafts are typically thought of as “safety net” accounts. You'll only be charged interest on your overdraft account balance and will not be charged overdraft fees even if your account goes into the negative.

Compare different line of credit and overdraft products

Citi Ready Credit

Citi Ready Credit

20.49 % p.a.

variable rate

  • Access a line of credit
  • 6.90% p.a. for 3 years on initial balances transferred (reverts to variable rate 20.49% p.a)
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100% confidential application

Citi Ready Credit

Citibank Ready Credit Loan offers a low-rate, flexible personal loan that caters to the needs of simplifying debt.

  • Interest rate from: 20.49% p.a.
  • Interest rate type: Variable
  • Application fee: $199
  • Minimum loan amount: $5,000
  • Maximum loan amount: $75,000
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Data indicated here is updated regularly
Name Product Interest rate (p.a.) Min Loan Amount Max. Loan Amount Application Fee
Citi Ready Credit
20.49%
(variable)
$5,000
$75,000
$199
Introductory fixed rate of 6.90% p.a. applies for 3 years
Get an introductory rate of 6.90% p.a. on your initial balances transferred for 3 years. Standard rate applies after this period.
Credit24 Line of Credit
48%
(variable)
$500
$10,000
$0
You’ll receive a standard variable interest rate of 48% p.a.
Lines of credit loans are available from $500 - $10,000 on terms of up to 3 years.
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Data indicated here is updated regularly
Name Product Interest rate (p.a.) Min Loan Amount Max. Loan Amount Application Fee
BankSA Overdraft
From
14.99%
(variable)
$500
$20,000
$0
The BankSA Overdraft allows you access to extra funds if you need it.
Bank of Melbourne Unsecured Personal Overdraft
From
14.99%
(variable)
$500
$20,000
$0
The overdraft option from Bank of Melbourne is a flexible revolving line of credit
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Important Information*
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You'll receive a fixed rate between 9.99% p.a. and 18.99% p.a. ( 10.88% p.a. to 19.83% p.a. comparison rate) based on your risk profile
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SocietyOne Unsecured Personal Loan

You'll receive a fixed rate between 6.99% p.a. and 20.49% p.a. based on your risk profile
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