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What is a line of credit and how does it work?

While traditional personal loans have a fixed term, a line of credit lets you access extra money whenever you want (up to your credit limit). This means you can use it as and when you need it without applying for another loan, which allows more flexibility than fixed-term loans.

What’s a line of credit good for?

You can use a line of credit for just about anything – think holiday, home renovations or even a new car. Best of all, you only pay interest on the amount you’ve borrowed, not your entire credit limit. You can also often access your money pretty easily, by transferring to a transaction account using online banking and then either paying for things with direct transfers or withdrawing money at an ATM.

How does the interest rate compare?

While every loan is different, you may pay a bit more for the convenience of a line of credit compared to a secured or unsecured personal loan. But the rates are often still competitive and can be better than many credit cards.

Another consideration is the variable interest rate. Line of credit loans tend to have a variable rate, whereas fixed-term loans give you the option of fixing the rate for more predictable repayments and loan cost. A variable rate means your repayments can vary if the rate changes – something to think about before you apply.

How much will the bank lend you?

As for how much money you can borrow, you could borrow in a similar credit limit range as you would with an unsecured personal loan. For example, the Westpac Flexi Loan (Westpac’s line of credit) gives you $4,000 to $50,000. If you need more than this to buy a car, keep in mind that a secured car loan may give you up to around $100,000 and potentially a lower rate, too.

Don’t forget the fees

Just like other loans, a line of credit will often charge a lending establishment fee and a monthly loan account fee, so you may want to do your research on all the costs before choosing a loan to suit you.

If you’d like to learn more, read 5 things to consider when choosing between a line of credit and a personal loan.

Want to get started? Read more about the Westpac Flexi Loan.

Things you should know

Credit criteria, fees, charges, terms and conditions 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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