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Personal line of credit loans are useful in case of emergencies. However, you can use the funds for anything you choose, including consolidating your debts or making small or large purchases.
Find out more about this type of loan and if it's right for you in this guide.
A line of credit is a form of personal loan that acts like a credit card. It's a loan that allows you to conveniently draw on funds in the form of a revolving line of credit. You pay towards your balance and the accrued interest in monthly instalments and you can access more credit (to a predetermined limit) as and when you need to.
Unlike a personal loan in which the whole amount is transferred into your account, a line of credit grants you access to a credit limit, but the funds remain where they are until you decide to use them. This means you only pay interest on the funds that you use, as opposed to the entire credit amount, which you'd need to do with a personal loan.
There are a number of key differences between a line of credit and a personal loan that you should consider before choosing which one is more suitable for your needs. Generally, a line of credit can be more beneficial for someone looking for continued access to an amount of funds, whereas a personal loan may suit someone intending to make a large purchase or other singular expense.
How a line of credit varies from a personal loan
A personal line of credit works much like a credit card, giving you access to a specified credit limit to use at your discretion. The main difference between a credit card and a personal line of credit is that the credit limit is usually higher on a personal line of credit, while the rates tend to be relatively lower than credit cards. You also won't need to submit a credit application every time you need to make a withdrawal.
Once you're approved, the funds are available for you to use when you need them. You are not charged against your entire balance, only on the funds you withdraw. Some personal line of credit loans are linked to debit cards, allowing additional flexibility on how you use the funds.
A personal line of credit can be secured or unsecured. Which option you go for will depend on your preferences, financial circumstances and whether or not you have an eligible asset to offer as security.
Generally, opting for a secured line of credit will increase your chances of approval, give you access to a lower interest rate and increase your credit limit (usually up to the value of the asset security). Eligible security usually includes assets such as vehicles and commercial or residential property.
Unsecured lines of credit do not require an asset as security. These loans will generally require you to have an excellent credit score, may be more expensive and you could have access to a lower credit limit.
If you're considering a line of credit loan, it's important to compare your options and find the loan that's right for you. Here are some features to keep in mind when considering the products available:
When it comes to finding the right personal line of credit, as well as comparing your loan options, you also have to consider what kind of lender you want to opt for. Different types of lenders offering personal lines of credit include:
Bricks-and-mortar banks such as the Big Four and others are an option for borrowers looking for a personal line of credit. Some individuals may prefer this as an option because they have a good longstanding relationship with their existing bank or they prefer face-to-face contact via a branch (something smaller lenders may not to facilitate). However, larger banks do tend to have higher rates and fees than smaller, non-bank lenders. They also usually require borrowers to have excellent credit ratings.
These are financial institutions, also known as "mutuals", that are member-owned and not run for profit. This means that any profits that are earned are put directly back into products and services. Standard financial products are usually on offer from these institutions, including personal loans. Like banks, credit unions and building societies tend to have branches. However, you are usually required to be a member in order to apply for finance (though this doesn't mean that if you aren't a member already, that you can't join).
Neobanks, also sometimes referred to as "online banks", source their own funding and make a margin on the difference. Often, neobanks will offer personalised interest rates to customers based on their financial circumstances and credit scores. Neobanks offer more competitive rates than their bigger opponents. Borrowers with less-than-perfect credit scores may also find it easier to be approved with a neobank (though they are unlikely to be offered the lowest rate). Neobanks don't usually have branches and are only accessible to contact via phone, email and live chat.
Some P2P lenders may offer personal lines of credit to successful applicants. P2P lenders are finance providers that facilitate a platform where investors finance a portfolio of personal loans and earn interest on what they lend, while borrowers are given an individual rate based on their credit score. Generally, P2P lenders don't have branches and can only be found online.
Personal lines of credit tend to be more flexible than personal loans, which means that you can usually use them for any purpose. Whether it's withdrawing cash from an ATM for groceries or paying for a luxury holiday, a personal line of credit can often cover it.
A major benefit to personal lines of credit is that they are flexible and available for multiple purposes, such as paying for your wedding, your honeymoon or some home improvements. Personal loans, on the other hand, are a lump sum payment and some lenders may limit you as to what you can use the funds for.
When looking for the right personal line of credit, you ought to consider the following:
You can use the table found on this page to begin comparing your personal line of credit loan options. The eligibility criteria will differ between lenders, so make sure to check this carefully before submitting your application. However, you will generally be asked to provide the following information:
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hi what are the minimum employment requirements for a personal loan or a line of credit
Hi Preston,
Thanks for leaving a question on finder.
The eligibility criteria differ between lenders, so make sure to check this carefully before submitting your application. Be prepared with the following information as most lenders will have similar criteria necessary as part of the application:
1. Income. You will have to show proof of an ongoing steady income. Your payslips are usually acceptable or a bank statement which shows consistent deposits from an employer.
2. Liabilities. You are going to be asked to provide a complete list of your currents debts.
3. Identification. All lenders will need to see a current and valid photo ID of the applicant and in most cases you will be asked to provide a photocopy for their records.
4. Assets. Any real property you own, plus cars, savings and investment accounts.
It is not stated on how long you should be employed to get approved for a loan and you will have to check with the lender regarding this. Typically, as long as you can prove that you have steady income and currently employed, you will be approved.
Cheers,
Joel
hi I have $7000 in credit card debt how can i pay it off fast.
Hi Marlene,
Thanks for reaching out.
To give you some tips on how you can possible reduce or clear your personal debt, here is a page you can refer to. Should you want to move forward with a specific tip, a link is provided on the same page.
Cheers,
Joanne
Hello i would like to borrow 10,000- 15,000 i have 1 unpaid default a payday loan with a couple of enquiries recently i am employed full time and would like to get a private used car pay any bills or debts in full with some spare to get some essential furniture so its a single payment to help so i can work on my score before I buy a house
Hi Tristen,
Thanks for reaching out.
Typically, with bad credit personal loan, the possible loan amount may not be as much as $15,000, although, there are lenders who may offer $10,000, depending on if you meet the criteria. Although we’re not sure if you’ll be approved for a personal loan or not, you may review the criteria and contact a lender featured on this page to discuss your options and eligibility.
Cheers,
May
I would like to know if people with a bad credit rating can be considered.
Hi Nic,
Unfortunately you need good credit to be eligible for Citibank’s line of credit. You can compare your short term loan options on this page, or if you;re looking for a bad credit line of credit product, Wallet Wizard and MyKredit are two options to consider.
Hope this helps,
Elizabeth
Hi
Does the Commonwealth bank provide a personal line of credit account?
Hi M.Smith,
CommBank provides a Viridian line of credit that is linked to your home loan account. You can also consider a personal overdraft that is linked to your CommBank account.
I hope this helps,
Elizabeth
Eligibility please
Hi Tina,
Thanks for your question.
The eligibility criteria vary from bank to bank. But generally, these banks would approve your application based on their assessment of your income, debts, assets, credit history and provided necessary documents/information.
Cheers,
May