Line of credit or overdraft? We look at the features to help you choose the one that's right for you.
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 the guide below, we will 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 and 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
Citi Ready Credit Offer
Citi Ready Credit
From
variable rate
- Access a line of credit
- 5.9% p.a. for up to 3 years (reverts to 19.99% p.a)
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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