What is a line of credit?

This article is general information only and doesn't take your personal circumstances into account. Have a think about whether it's the right fit for you and check out our Target Market Determination before applying for the Cashies Loan.

Ever needed a bit of extra cash, that you can access anytime you have a need without having to reapply for a loan? That's pretty much what a line of credit is built for. Typically, a line of credit gives you access to funds up to an approved limit. You draw down what you need, pay it back, and it's there again when you need it, without having to reapply every time. That's different to a regular fixed loan, where you're handed a lump sum upfront and pay it off over a set term with no flexibility to redraw paid off sums.

Lines of credit come in a few different categories, and with different security options for businesses, for homeowners, and for everyday personal use.

"Line of credit" is a reusable loan product. It gets used for a few different purposes, depending on the borrowers' needs and circumstances. Here's the quick rundown.

1. Business line of credit

A business line of credit helps a business keep cash flowing to cover wages, stock or supplier payments while waiting on customer invoices to be paid.
It is the same idea as a credit card: interest is only charged on what's drawn, not the whole approved limit.

Unlike credit cards, these can be secured against business assets or unsecured, and are offered by banks and specialist business lenders.
If you're after more detail, business.gov.au has a good rundown of business finance options.

2. Home (equity) line of credit

A home line of credit lets a homeowner borrow against the equity they've built up in their property up to an approved amount. It's secured against the home, which usually means a lower interest rate but it also means the lender can sell the property if repayments aren't met.

Usually offered by banks and credit unions as a home loan product, it allows you to access the equity in your home without having to do a home loan top up or redraw.

3. Personal line of credit

A personal line of credit is for everyday or unplanned expenses and a way to manage cash flow for things like car repairs, medical bills, getting through a patch where income doesn’t meet the timings of when bills are due.

It's usually not secured against an asset, so approval comes down to your income, expenses and credit history rather than equity you hold.

This is the type we'll focus on for the rest of this guide and it's where the Cashies Loan sits.

A typical personal line of credit is what's called a continuing credit contract. You're approved for a credit limit, and from there you can draw down, repay, and redraw within that limit without filling out a new application every time. You're only charged interest on what you've actually drawn, not on the part of your limit you haven't touched.

Secured vs unsecured: a personal line of credit can be secured (backed by an asset) or unsecured (based on your income and credit history, no property or asset needed).

The Cashies Loan is an unsecured personal line of credit of up to $10,000. No need to put your home or anything else up as security.

How it typically works:

• You're approved for a credit limit within a set range.
• You draw down some or all of that limit when you need it.
• You make repayments, and interest is only charged on what's outstanding.
• As you pay it back, that part of your limit is available to redraw again. No new application needed.
  

Like any credit product, a personal line of credit has trade-offs worth looking at before you apply.

Pros:

• You only pay interest on the amount you've drawn, not your full credit limit.
• No need to reapply each time you need funds, redraw up to your limit as cash needs arise.
• Useful for ongoing or unpredictable costs to keep you going, rather than a single, known expense.

Cons:

• Interest rates on lines of credit are typically higher than fixed-term personal loans, since the flexibility comes at a cost.
• Some maintenance fees may apply depending on the lender.
• Because funds are always accessible, it can be easier to carry a balance for longer than planned. A line of credit works best for people who'll pay down what they draw rather than let it sit.

How this applies to the Cashies Loan:

Our Cashies Loan is a personal line of credit up to $10,000, and it's worth knowing upfront where it sits against those trade-offs.

• Your rate is fixed at the outset (19.95% to 48% p.a. depending on your credit history), so it won't change once you're approved.
• Lines of credit usually cost more than fixed-term personal loans, but for people with less-than-perfect credit that gap is much smaller. 
  In that credit band, Cashies Loan rates are broadly in line with what most personal loan lenders charge, so you get the flexibility of a line of credit without paying extra for it. 

See how we compare to other cash loans

• Cashies Loan has no establishment or monthly fee so, much like other line of credit loans, the most important thing to manage is the interest: only draw what you need and keep an eye on your outstanding balance so it doesn't run longer than you intended.
• Once you've paid your balance down to zero and haven't drawn on it for three months, we close it automatically, so you only keep a line of credit for as long as you need one.

There's no universal credit score required for you to be approved for a personal line of credit. It varies from lender to lender, and most will look at your credit report alongside other factors like income and existing debts.

Generally, a higher credit score gives you access to lower interest rates and higher credit limits, while a lower score may mean a smaller limit, at a higher rate, or a lender requiring extra information or security before approving your application. 

You can find out more about how credit scores are calculated in Australia in our what a credit score is and how it's calculated guide.

How this applies to the Cashies Loan:

We don't rely on your credit score alone for approvals. Your credit history is used to determine which of our three personalised rate tiers you're offered (19.95%, 35%, or 48% p.a.), but a lower credit score won't automatically rule you out.
We also look at your income, spending patterns, and repayment behaviour to get a fuller picture. 
That's part of why the Cashies Loan can be accessible to people with less-than-perfect credit, including those who might not qualify for a standard bank line of credit.

Limits vary widely by lender and product. Bank-issued personal lines of credit can range from a few thousand dollars up to $50,000 or more, particularly where the facility is secured. Unsecured personal lines of credit aimed at everyday borrowing needs are typically offered in smaller amounts.

The Cashies Loan, for example, is an unsecured personal line of credit of up to $10,000, with credit limits available from $2,050. Because it's unsecured, you don't need to offer up your home or any other asset as security to be approved.

The Cashies Loan is an unsecured personal line of credit of up to $10,000, with no establishment or monthly fees. Learn more about how it works or apply now.