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Line of credit: Everything you need to know about a line of credit in 2020! Learn now with Nifty!

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

So, you’re looking into a line of credit but do not know how they work. Well, there’s good news! Nifty is here to help. Let us give you the run-down on things you need to know about a line of credit. Ready? Let’s get started!

Sitting in the middle ground between personal loans and credit cards, a line of credit is best suited for those looking for greater flexibility in their finance. This type of loan allows you to conveniently withdraw funds up to a predetermined limit (credit limit), similar to a credit card. You are then often charged interest on the amount you have currently withdrawn, as opposed to the whole credit limit. Meaning, the higher your outstanding balance, the more interest is incurred. Simple, right?

By the way, for loans for people on Centrelink, check out our dedicated page.

One of the main uses for a line of credit is that you are able to redraw on the loan only when you need to. If you’re approved for a $5,000 line of credit, you will have the ability to redraw on the loan up to the maximum credit limit. So, even if you don’t need all of the funds at once, you can re-draw later down the track once you have finished paying a portion of it off. As an example, let’s say you have an outstanding balance of $1,000 on your $5,000 line of credit. Even though you are still paying the loan, you will be able to re-draw up to $4,000 without submitting an application. This is super handy if you’re in need of fast cash to cover an expense. It is worth noting that depending on your lender, there may be some limitations to when and how you can redraw. 

line of credit

Fees for a line of credit

As with most financial products; borrowing limits, interest rates and fees will differ between different providers. Which is why it is crucial that you do a little of your own research when searching for a line of credit. With that being said, however, there are a few commonalities that can be addressed:

Establishment Fee

Although not charged by every provider, an establishment fee could be added when you are initially approved for the line of credit. This fee will normally be added to the loan as an outstanding balance, meaning it will begin to incur interest. The amount of this fee will often differ depending on both the provider and the credit limit you are applying for. 

Account keeping fees

It is common for a provider to charge an account keeping fee when a client has an open line of credit. This fee will usually be charged on a monthly basis, though this may differ between from provider to provider. One important thing to note is that a line of credit may not actually close once the entire balance has been paid off. If this is the case, the account will still incur account keeping fees. These fees can quickly add up if left unchecked. 

More more general information on loan fees and charges, visit the Moneysmart website.

What is the difference between a loan and a line of credit?

Although both products serve the same basic need – which is to offer funds you otherwise would not have access to, there are some key differences between a personal loan and a line of credit, some of which have been listed below:

Ability to re-draw

When you are approved for a personal loan, the entirety of the loan will either be given to you to cover the required expense or used to purchase a product directly. If you require additional funds after-the-fact, you will often need to submit a new loan application. 

A line of credit is different in the fact that you have the ability to re-draw on your account up to your approved balance. This means, once you have been approved, you can take out as much or as little as you wish, provided the amount doesn’t exceed the credit limit. Even if you finish paying off the outstanding balance, you will often be able to re-draw up to the credit limit without needing to submit a new application. 

Flexible repayment terms

One major difference between a line of credit and a personal loan is the repayment term. The thing is, unlike a personal loan, a line of credit will not normally have an ‘end date’ on the loan. Instead, the loan finishes when the customer decides to close the account, provided there is no outstanding balance of course.

When you apply for a personal loan, you will often have an agreed ‘end date’ for the loan contract. This is the date the provider expects the account to be fully repaid following the repayment schedule. Once a personal loan account is closed, you cannot ‘re-open’ is. If you require more funds, you will need to apply for an additional loan.

Flexible repayment amounts 

As there really is no ‘end date’ for a line of credit, repayments remain fairly flexible. You can usually choose to increase or lower your repayments when desired. Most providers will set a minimum repayment on the account to ensure the debt does not go backwards. This will normally be a flat fee or a set percentage of the amount owed, whichever is higher. 

Although some personal loans allow customers to lower their repayments when their balances reduce, this is not always the case. For the most part, the repayments on a personal loan will remain the same throughout the entire loan period. 

Is a line of credit a good idea? Pros & Cons

A line of credit can be the perfect option for those looking for continuous access to funds, though, there are some downsides. Take a look below to see the pros and cons:

Pros: 

  • Flexible terms – you can usually choose to repay what you like, provided it is above the minimum repayment amount
  • Easy access to funds – access funds from your account without submitting an application
  • Only charged for what you use – For the most part, interest will only be charged on the amounts you redraw from the account

Cons:

  • Easier to overspend – With the relative ease of accessing funds, some people may have a tendency to overspend with a line of credit
  • Unchecked fees – If you have paid the entire balance of your account, it is important you understand that service fees will likely still be charged. If this is left unchecked, they can quickly add up with interest being accrued as well

Nifty Loans

At this stage, you may be wondering whether Nifty offers lines of credit. Well, at least at the moment, we do not offer lines of credit, though, we would like to present a range of other products you could still be interested in. These include short term personal loans for Australians that start from $300 and go up to $10,000. The repayment terms for these products vary depending on the loan amount, though, they generally fall between 6 and 24 months. Depending on your situation, we can offer either secured or unsecured loans. For greater comparison, the table below outlines the specifics for each loan product. 

Loan TypeAmountTerm (Months)Loan SecurityLine of Credit available
Small Loan$300 – $2,0006 – 12UnsecuredComing Soon
Medium Loan$2,100 – $4,6009 – 24 SecuredComing Soon
Large Loan$5,000 – $10,0009 – 24 SecuredComing Soon

Want to know more?

So, if you’re after a Nifty line of credit… Watch this space!  There are a plethora of other products that we can potentially offer you. If you’re interested in our other loan products, or just have a question, feel free to hit us up from our Contact Us page.

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Andy Andy

AUTHORITATIVE SOURCE

Andrew Bell

Since founding Nifty in 2016, Bell has continued to make waves within the local financial sector for his continued ambition and willingness to adopt emerging technologies.

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Loan Costs

Large Loans

Large Loans

Large Loan Example

$5,000

Loan amount:
$5,000
Terms:
9 - 24 months
Establishment fee:
Variable
Monthly Fee:
$0
APR:
21.24%
Comparison Rate:
48%**
View Example
Loan amounts:
$5,000
Terms:
18 months, (78 weekly repayments)
EEstablishment fee and Total Interest:
$1,897.54
Total payable:
$6,897.54
Weekly installments:
$88.43
View Loan Details
Medium Loans

Medium Loans

Medium Loan Example

$2,001 - $4,600

Loan amounts:
$2,001 - $4,600
Terms:
9 - 24 months
Establishment fee:
$400
Monthly Fee:
$0
APR:
47.8%
Comparison Rate:
65.86%**
View Example
Loan amounts:
$2,500
Terms:
24 Months, (104 weekly repayments)
EEstablishment fee:
$400
Total other fees:
$1,609.44 (reducing interest)
Total payable:
$4,509.44
Weekly installments:
$43.36
View Loan Details
Small Loans

Small Loans

Small Loan Example

$300 - $2,000

Loan amounts:
$300 - $2,000
Terms:
6 - 9 months
Establishment fee:
20%
Monthly Fee:
4%
APR:
N / A *
Comparison Rate:
138.37%**
View Example
Loan amount:
$1,000
Terms:
6 Months, (24 weekly repayments
EEstablishment fee:
$200
Total other fees:
$240
Total payable:
$1,440
Weekly installments:
$60
View Loan Details

* Not applicable. Small loans do not charge an annual interest rate.

** WARNING: This comparison rate is true only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate with the lender that finances your loan. Different loans may include other payable fees and charges. All fees and charges will always be displayed on your loan contract.