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If you find you’ve taken out a loan for a specific purpose and then you realise you may well need additional borrowing to fund something else, you could consider the benefits of a line of credit personal loan. 

What is a line of credit personal loan?

As an alternative to a series of loans, each for a different purpose, you can make an application for a single line of credit personal loan. This means you borrow a sum from the lender for an agreed period, however, it’s not necessary to use all the funds in one go.

Instead you can use part of the loan to fund a specific project and even as you continue to repay that sum you can redraw funds for another project within the line of credit limit. 

Why do people use a line of credit personal loan?

There are several reasons why you might want to apply for a line of credit personal loan:

  • You might like the idea of having a financial safety net in case you incur unexpected expenditure, such as a medical bill or repairs to your home or car;
  • You might want to link your line of credit personal loan with your savings or your everyday account, making it easier to manage your funds;
  • You might want to act as guarantor for a family member without having to dip into your savings, or to help support a child planning to study at an Australian university. 

What are the main features?

Individual line of credit personal loans have different features, so it’s always best to make enquiries about whether the lender offers competitive rates and how easy it will be to access your funds, for example via phone or internet banking and at ATMs. In most cases, you will pay an establishment fee, however, only a few lenders will ask for a monthly service fee as well. 

A line of credit personal loan may be secured or unsecured, depending on the amount you want to borrow and the lender’s rules and regulations. For example, you could secure your loan on your property or even your car, if it is not too old and you are not borrowing more than its market value.

What are the pros and cons of line of credit personal loans?

A line of credit personal loan offers access to funds, as you need them. This means you can withdraw additional funds, should they be required.

One key benefit is that you will only pay interest on the total sum you have withdrawn at any one time rather than the total amount you could borrow.

Another benefit is that you don’t have to keep reapplying when you need more money, as you can simply redraw within the agreed credit limit. A line of credit usually has both a minimum and maximum amount you can access.

This article was reviewed by Personal Finance Editor Alex Ritchie before it was published as part of RateCity's Fact Check process.