Line of Credit Personal Loans: What Are They?

6 December 2017
With a line of credit personal loan, you can draw on funds as you need to up to a certain limit.

What is a line of credit personal loan?

Line of credit personal loans are a certain type of personal loan that can be very flexible, allowing you to withdraw funds within a set credit limit and only pay interest on withdrawn funds.

So essentially, a line of credit personal loan gives you access to funds as you need them, allowing a kind of safety net in emergency situations.

How does a line of credit personal loan work?

Line of credit personal loans give you access to funds as you need them, meaning you only pay interest on the amount you actually use. A useful feature of line of credit loans is you don’t have to reapply with your lender when you want to make another withdrawal (as long as you stay within the agreed credit limit). For greater convenience and flexibility, you can even link loans from certain providers to your debit card, giving you greater freedom when deciding what the rest of the loan could be used for.

Think of a line of credit personal loan as being similar to a credit card – you can borrow money in small amounts up to the specified credit limit.

Line of credit personal loans Vs personal loans

The distinction between personal loans and line of credit personal loans can be blurry at times. If you’re looking to choose the right type of loan for your circumstances, here are the key differences between the two.

First of all, standard personal loans have a fixed loan term, and during this time they must be paid back in full. These fixed loan terms also come with fixed monthly repayments, and once you’ve been approved you will receive all of the funds at once in a single upfront sum.

Line of credit loans, on the other hand, often don’t have fixed loan terms or repayments. Since you often don’t receive all the funds up front (only what you need to borrow), you can borrow more (up to your credit limit) as you go. As long as you meet the minimum monthly repayment requirements (which are a percentage of the funds withdrawn), there are no fixed repayments.

Based on these features, a line of credit loan may be more beneficial to those looking for a more flexible repayment source. This option can provide an ongoing source of funds for smaller purchases like paying bills and consolidating short-term debts. But a personal loan may be better for a person looking to meet larger repayments in a structured manner. When deciding between the two, ask yourself what you need the funds for and how much you need to borrow.

How to apply for a line of credit personal loan?

Applying for a line of credit personal loan is relatively straight-forward and tends to be quicker than applying for other loan types such as home loans. The eligibility criteria will differ between lenders, but you should make sure you have the following information on hand:

  • A complete list of your assets and liabilities
  • A proof of regular income, such as payslips or bank statements
  • Valid identification, usually a driver’s license or passport

You should be approved or rejected within three business days, depending on the lender you choose. But before you apply, consider both the pros and cons of such a loan.

Line of credit personal loans: pros and cons

So, line of credit personal loans can be more suited to people with ongoing, smaller expenses, but that doesn’t mean they always are. There are disadvantages as well as advantages that come with them as outlined below:



You’re only charged interest on what you use There may be a temptation to overspend
Flexible loan terms, no need to reapply Fees and charges may apply (this is not specific to line of credit loans)
Easy access to funds through ATMs and online banking You could be penalised for not meeting the minimum monthly repayments
They can give you a financial safety net

To compare personal loan options that are current at the time of writing, check out what’s available in our personal loan comparison tables:

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