Line of credit or overdraft: Which is right for you? |

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.

We’re reader-supported and may be paid when you visit links to partner sites. We don’t compare all products in the market, but we’re working on it!

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

Data updated regularly
Name Product Interest Rate (p.a.) Min Loan Amount Max. Loan Amount Application Fee
Credit24 Line of Credit
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.

Compare up to 4 providers

Data updated regularly
Name Product Interest Rate (p.a.) Min Loan Amount Max. Loan Amount Application Fee
BankSA Overdraft
The BankSA Overdraft allows you access to extra funds if you need it.
Bank of Melbourne Unsecured Personal Overdraft
The overdraft option from Bank of Melbourne is a flexible revolving line of credit
Gateway Edge Overdraft
An overdraft facility that is linked to your savings account.

Compare up to 4 providers

Picture: Shutterstock

More guides on Finder

Personal Loan Offers

Important Information*
Logo for Harmoney Unsecured Personal Loan
Harmoney Unsecured Personal Loan

You'll receive a fixed rate between 6.99% p.a. and 24.79% p.a. based on your risk profile.
Apply for a loan up to $50,000 and repay your loan over 3 or 5 years terms.

Logo for ANZ Fixed Rate Personal Loan
ANZ Fixed Rate Personal Loan

You'll receive a fixed rate of 10.5% p.a.
Apply for up to $50,000 to use for a variety of purposes without needing to add security. Available to self-employed applicants.

Logo for NAB Personal Loan Unsecured Fixed
NAB Personal Loan Unsecured Fixed

You'll receive a fixed rate between 6.99% p.a. and 18.99% p.a. ( 7.91% p.a. to 19.83% p.a. comparison rate) based on your risk profile
An unsecured loan up to $55,000 you can use for a range of purposes and pay off over up to 7 years. Note: Majority of customers will get the headline rate of 12.69% p.a. (13.56% p.a. comparison rate) or less. See Comparison rate warning in (i) above.

Logo for SocietyOne Unsecured Personal Loan
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
A loan from $5,000 to use for a range of purposes. Benefit from no ongoing fees and no early repayment fee.

Ask an Expert

You are about to post a question on

  • Do not enter personal information (eg. surname, phone number, bank details) as your question will be made public
  • is a financial comparison and information service, not a bank or product provider
  • We cannot provide you with personal advice or recommendations
  • Your answer might already be waiting – check previous questions below to see if yours has already been asked

Finder only provides general advice and factual information, so consider your own circumstances, or seek advice before you decide to act on our content. By submitting a question, you're accepting our Terms of Use, Disclaimer & Privacy Policy and Privacy & Cookies Policy.
Go to site