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 credit||Overdraft|
|Costs||Interest 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 term||You 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 & access||Eligibility 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
- Access a line of credit
- 6.90% p.a. for 3 years on initial balances transferred (reverts to variable rate 20.49% p.a)
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
Personal Loan OffersImportant Information*
You'll receive a fixed rate between 6.99% p.a. and 25.69% 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.
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
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.
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.
You'll receive a fixed rate between 6.95% p.a. and 17.95% p.a. based on your risk profile
A loan from $5,000 to use for a range of purposes. Make additional repayments or pay off the loan early, penalty-free.
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