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5 things to consider when choosing between a line of credit or personal loan

If you need some extra money – maybe for that overseas trip, to pay some big bills or to have on hand for unexpected expenses that pop up – you may have been looking into personal loans and lines of credit. But what’s the difference and how do you decide which might work better for you? Here are 5 things to think about.

Lump sum vs. the ability to redraw

Put simply, a personal loan gives you a lump sum, so it can be good if you want a one-off amount. On the other hand, a line of credit is a reusable loan that you can access as often as you like up to your credit limit. So in a way it’s similar to a credit card, giving you money as and when you need it.

Loan purpose

While personal loans can be used for all sorts of things, people often get them for expenses they can quantify, such as holidays, home renovations, debt consolidation and even medical bills. But if you’re not sure how much money you’ll need – say you’re planning a wedding or think you might need more money later – then a line of credit could better suit your needs. Best of all, once you’ve repaid it, you can withdraw the money again if something else comes up.

Interest rate

All that added convenience means the interest rate on a line of credit can often be slightly more than on an unsecured personal loan. For instance, a Westpac Unsecured Personal Loan has a fixed rate that remains the same for the loan term, whereas a Westpac Flexi Loan (which is a line of credit) has a higher rate than can become higher or lower over time. So you might want to think about what your priorities are.

Other costs

You may also want to look at the lending establishment fee and monthly loan account fee of the loan you’ve got in mind. At Westpac, the monthly loan account fee is the same for both an unsecured personal loan and a line of credit, but the lending establishment fee is more for the unsecured personal loan.

Set loan term vs. no loan term

An unsecured personal loan has a set term, which is often your choice of between 1 and 7 years. By the time the loan ends, you’ve paid everything off. What’s more, because your monthly repayments are set out in your contract, you know exactly what they are, so you can budget for them.

In contrast, a line of credit has no set loan term or repayments. You pay a percentage (often around 2%) of your monthly balance or a set amount (say $10), whichever is greater. Again, you should look at all the features and choose the option that suits your needs.

Ready to get started? Read more about the Westpac Flexi Loan and Unsecured Personal Loan.


Things you should know

Conditions, fees and normal lending criteria apply.

See our Flexi Loan Conditions of Use (PDF 305KB) or contact us. Terms and conditions may be varied or new terms and conditions introduced in the future.

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