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Line of credit vs overdraft

Line of credit or overdraft? We break down the features so you get the product that’s right for you.

Personal overdrafts and lines of credit are both flexible and convenient financing alternatives to standard personal loans and credit cards. However, they are often thought to be the same product, and the similarities between the two often make it difficult to choose. In the guide below, both accounts will be broken down so you can pick the right one for your needs.

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 is also a line of credit, but it’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 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.These accounts do not usually have fixed repayment terms. Your account will be ongoing as long as you keep making regular repayments.
Availability and accessLenders generally provide a debit card that gives you access to your line of credit. Eligibility criteria vary, but they are generally available to those with good credit who can afford the repayments.You will need to be an existing account holder or looking to open a transaction account with the bank to open an overdraft. Then, you can access your overdraft automatically when your account funds have been exhausted.

Which account is right for you?

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

  • How often 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. Even if your account goes into the negative, you will not be charged overdraft fees, you’ll only be charged interest on your overdraft account balance.

Understanding the differences between these two accounts will help you decide which product is right for you.

Compare the differences between the two

Citi Ready Credit Offer

Citi Ready Credit

From

5.90 % p.a.

variable rate

  • Access a line of credit
  • 5.9% p.a. for up to 3 years (reverts to 19.99% p.a)
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100% confidential application

Citi Ready Credit Offer

A flexible line of credit up to $75,000 with flexible repayments. Receive a competitive introductory rate on the initial balance you transfer for three years.

  • Interest rate from: 5.90% p.a.
  • Interest rate type: Variable
  • Application fee: $199
  • Minimum loan amount: $5,000
  • Maximum loan amount: $75,000
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Rates last updated October 17th, 2018
Name Product Interest Rate (p.a.) Min Loan Amount Max. Loan Amount Application Fee Product Description
Citi Ready Credit
From 5.9% (variable)
$5,000
$75,000
$199
Introductory variable rate of 5.9% p.a. applies for 3 years.
Get an introductory rate of 5.9% p.a. on your initial balance for 3 years. Standard rate applies after this period.
Westpac Flexi Loan
From 14.99% (variable)
$4,000
$50,000
$150
You'll receive a variable rate of 14.99% p.a.
A convenient line of credit with limits from $4,000 that you can access 24/7.
St.George Get Set Loan Personal Loan
From 17% (variable)
$5,000
$50,000
$150
You'll receive a variable rate of 17% p.a.
A line of credit up to $50,000 that offers no set repayment terms. Benefit from flexibility and 24/7 access to your funds.

Compare up to 4 providers

Rates last updated October 17th, 2018
Name Product Interest Rate (p.a.) Min Loan Amount Max. Loan Amount Application Fee Product Description
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
14.99% (variable)
$500
$20,000
$0
The overdraft option from Bank of Melbourne is a flexible revolving line of credit

Compare up to 4 providers

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You'll receive a variable rate between 8.99% p.a. and 17.99% p.a. (9.96% p.a. to 18.91% p.a. comparison rate) based on your risk profile
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