comparing loan options

Personal loan vs line of credit

Rates and Fees verified correct on December 4th, 2016

Which works better? A line of credit or personal loan? The answer is always in the details.

With the extreme variety in today’s financing options, it can get very confusing when deciding between two basic personal finance options: personal loans or lines of credit. Each has its own advantages and disadvantages, but making the wrong choice could be very expensive. So choosing the most appropriate option for your particular situation could potentially save you thousands in interest repayments and fees.

The main points of difference

  • Loan term. Personal loans have a fixed term, anywhere between one and seven years, and they’re paid back in full by the end of that term. However, lines of credit don’t come with a “term” and the funds you borrow become available again after they’re repaid (plus interest).
  • Repayments. Both involve monthly repayments. However, personal loans have fixed monthly repayments while lines of credit depend on the previous balance, amount drawn, accruing interest and other factors.
  • Time of disbursement. With personal loans, your lender will disburse your funds upfront as soon as you agree on the loan contract and sign it. With lines of credit, you’re able to withdraw up to your approved limit on an ongoing basis as long as you’re meeting minimum monthly repayments
  • Fees. Personal loans usually charge monthly service and application fees while lines of credit usually charge annual service fees. However, lenders for both personal loans as well as lines of credit may charge a variety of other hidden fees. Make sure you’re aware of all fees for any option you’re considering.

Compare personal loans and lines of credit

Rates last updated December 4th, 2016
$
Interest Rate (p.a.) Comparison Rate (p.a.) Min Loan Amount Loan Term Application Fee Monthly Repayment
HSBC Personal Loan
A competitive fixed interest rate loan with the option to make extra repayments. Min. income $30,000
From 11.99% (fixed) 12.54% $5,000 1 to 5 years $150 Go to site More
CUA Fixed Rate Personal Loan
A competitive fixed-rate loan with flexible repayments that can help you consolidate debt or make a large purchase.
From 11.99% (fixed) 11.99% $1,000 1 to 7 years $0 Go to site More
Latitude Personal Loans (Unsecured)
An unsecured loan designed for multiple purposes – renovating, buying a car or travelling. Funds can be in your count in as little as 24 hours.
From 13.99% (fixed) 15.2% $3,000 2 to 7 years $250 (Loans under $4000 - $140) Go to site More
ANZ Fixed Rate Personal Loan
A flexible loan option that lets you pay off your debt, buy a car, fix up your house or cover travel costs.
From 13.95% (fixed) 14.81% $5,000 1 to 7 years $150 Go to site More
NOW FINANCE Personal Loans
Get rewarded with a low interest rate for your good credit history.
From 9.95% (fixed) 11.41% $4,000 1.5 to 7 years $395 (Based on $10,000) Go to site More
MoneyPlace P2P Loan
Interest rates from 8.90% p.a to 17.25% p.a. Comp rates from 8.90% p.a to 19.01% p.a depending on your credit score.
From 8.9% (fixed) 8.9% $5,000 3 to 5 years 0% - 3.75% of loan amount Go to site More
RACQ Unsecured Loan
An unsecured personal loan that lets you borrow funds for what you need. Repay the loan on terms up to seven years.
From 13.95% (fixed) 14.52% $5,000 1 to 7 years $378 Go to site More
RACV Personal Loan
You could use this personal loan offer from RACV to help finance a renovation, holiday or project.
From 9.15% (fixed) 9.69% $5,000 1 to 7 years $370 Go to site More
RateSetter Personal Loan
Ratesetter allow you to get a personalised rate based on your credit score.
From 9.42% (fixed) 9.42% $2,001 0.5 to 5 years $0 (fees may be charged) Go to site More
St.George Get Set Loan Personal Loan
A revolving line of credit that lets you access your funds as and when you need to.
From 17% (variable) $5,000 $150 Go to site More
Bank of Melbourne Unsecured Personal Loan
An unsecured personal loan that gives you a choice between a fixed or variable rate.
From 12.99% (variable) 13.87% $3,000 1 to 7 years $195 ($0 for existing customers) Go to site More
ANZ Variable Rate Personal Loan
A variable rate loan that lets you make and redraw additional repayments.
From 14.69% (variable) 15.55% $5,000 1 to 7 years $150 Go to site More
BankSA Unsecured Personal Loan
BankSA allows you to borrow up to $40,000 with your choice of a fixed or variable rate.
From 12.99% (variable) 13.87% $3,000 1 to 7 years $195 ($0 for existing customers) Go to site More

Line of Credit Loans you can apply for

Rates last updated December 4th, 2016.

Citibank Ready Credit 7.9%

Updated the introductory rate

June 4th, 2015

View latest updates

Suraj Shrestha Suraj
$
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
St.George Get Set Loan Personal Loan
A revolving line of credit that lets you access your funds as and when you need to.
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

Features of personal loans and lines of credit

Personal loan

Personal loans provide your funds upfront and stipulate an agreed time period to pay back your loan (called the “loan term”). Interest is charged on the entire duration of your loan term and on your entire loan amount. In general, most personal loans involve the following features:

  • Upfront lump-sum. Once the lender approves your application and you agree to the loan contract, you’ll receive all your funds upfront.
  • Interest rate. Your lender will charge either a fixed interest rate that won’t change over the term of your loan, or a variable interest rate which can rise or fall depending on market rates.
  • Term. The period over which you’ll be making repayments to fully pay back the loan is called the loan term. It generally ranges between one year and seven years.
  • Discount rates. Your lender may offer you a limited time discount if you take out a significant loan amount.
  • Flexible repayments. Depending on your lender,you may be able to choose exactly how you’ll be making monthly repayments.

Line of credit

Lines of credit have a maximum credit limit and you’ll only be charged interest on the funds you actually use. Repayments are made monthly but there is no fixed “term” for a line of credit. As long as you’re making your minimum monthly repayments, your funds will always be available to you.

  • Option to increase maximum credit limit. Your lender may provide an option to increase the maximum credit limit in line with your specific needs.
  • Flexible withdrawals. You’ll be able to withdraw funds from your line of credit whenever you like, as long as it doesn’t exceed your maximum credit/daily limit.
  • No fixed repayments. As long as you’re making a minimum required monthly payment (a percentage of withdrawn funds), there’s no fixed repayment amount.
  • Interest rate. Interest is paid monthly and is only charged on the amount you borrowed.

Which is suited to you?

Lines of credit are also helpful for those needing ongoing sources of funding to be used when they see fit. Since lines of credit are revolving, you won’t be charged on funds you don’t withdraw, making them an excellent option for backup sources of funding.

Since interest rates could get expensive for lines of credit, they are suited to those looking for flexibility with their credit and an ongoing source of funds for purchases such as paying bills, consolidating short-term debt and shopping.

Ultimately, a personal loan is suited to someone who wants structured repayments and an initial lump sum paid to them at the beginning of the loan term. A personal loan is well suited for those looking to make large purchases such as for a wedding or car using that lump sum. Also, a personal loan can be appropriate for those looking to consolidate a large amount of debt.

A personal loan may also be well-suited for those not able to pay their monthly credit card balance in full since not doing so for lines of credit could get very expensive.

Questions to ask to find the right loan for you

Although it will depend on your particular situation, you can get a clearer picture  of your decision by asking yourself the following questions:

What do you need the funds for?

If you’re looking to use the funds for large purchases, then you’d probably be better off with a personal loan. If you want an ongoing source of funding, then a line of credit would be more suitable.

How flexible are you with repayments?

Whichever option you consider, make sure you’re well aware of how disciplined you’ll need to be with repayments. Some people are tempted to use a line of credit simply because it’s there. If this could be a problem for you, you may be better off with the structured features of a personal loan since they offer fixed-repayment schedules, giving you consistency and balance.

How much do you need?

Unsecured personal loans may offer about $55,000 while secured personal loans would depend on the worth of the collateral you offer up as security, but can be as much as $80,000. On the other hand, not many lenders approve small amounts for personal loans but do so for lines of credit. Very large lines of credit are also available, but you’ll need to meet strict eligibility criteria.

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Related Posts

HSBC Personal Loan

A competitive fixed interest rate loan with the option to make extra repayments. Min. income $30,000

Latitude Personal Loan (Secured)

Can be used for whatever purpose: renovating, buying a car, booking a holiday. Funds can be in your account in as little as 24 hours.

CUA Variable Rate Personal Loan

Enjoy a competitive interest rate, flexible repayment options and no monthly fees.

SocietyOne Unsecured Personal Loan

Interest rates range from 7.9% p.a. to 24.25% p.a. Comp rate from 9.58% p.a. to 27.99% p.a. depending on your credit score

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