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Line of credit vs Overdraft

Rates and Fees verified correct on December 9th, 2016

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 these products?

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.

Compare the differences between the two

Citibank Ready Credit 7.9%

Citibank Ready Credit Offer

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

  • Interest Rate From: 7.90% p.a.
  • Interest Rate Type: Fixed
  • Application Fee: $149 (One off establishment fee)
  • Maximum Loan Term: 2 year
  • Minimum Loan Amount: $5,000
  • Maximum Loan Amount: $75,000
Rates last updated December 9th, 2016
$
Interest Rate (p.a.) Comparison Rate (p.a.) Min Loan Amount Loan Term Application Fee Monthly Repayment
Citibank Ready Credit 7.9%
A low-rate, flexible personal loan that makes it easy to achieve what really matters to you.
From 7.9% (fixed) $5,000 2 years $149 (One off establishment fee) Go to site More
Bank of Melbourne Get Set Loan - Line of Credit
This is a flexible line of credit loan from Bank of Melbourne.
From 17% (variable) $5,000 $150 Go to site More
BankSA Get Set Loan
The BankSA Get Set Loan is a line of credit offering flexible payment options.
From 17% (variable) $5,000 $150 Go to site More
Rates last updated December 9th, 2016
$
Interest Rate (p.a.) Comparison Rate (p.a.) Min Loan Amount Loan Term Application Fee Monthly Repayment
BankSA Overdraft
The BankSA Overdraft allows you access to extra funds if you need it.
From 14.99% (variable) $500 $0 More
Bank of Melbourne Unsecured Personal Overdraft
The overdraft option from Bank of Melbourne is a flexible revolving line of credit
From 14.99% (variable) $500 1 year $0 More

Compare the features of these loans

Line of credit

  • The costs. Interest rates vary, but you will only pay interest on your balance, not on your credit limit. Establishment fees may apply.
  • The 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.
  • Availability and access. Lenders generally provide a debit card that gives you access to your line of credit. Eligibility criteria varies, but they are generally available to those with good credit who can afford the repayments.

Overdraft

  • The costs. 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.
  • The loan term. These accounts do not usually have fixed repayment terms. Your account will be ongoing as long as you keep making regular repayments.
  • Availability and access. 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.

Elizabeth Barry

Elizabeth is a senior writer for finder.com.au specialising in personal finance. She enjoys reading PDSs so you don’t have to.

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