Pros and Cons of a Personal Line of Credit in Australia

Personal lines of credit are often described as flexible and convenient borrowing options. For some people, they can be a useful financial tool, while for others they may introduce unnecessary risk. Like any form of credit, a personal line of credit comes with both benefits and drawbacks that can affect your finances over time.

Understanding the pros and cons of a personal line of credit can help you decide whether it aligns with your financial situation, spending habits, and longer-term goals. This guide explains how personal lines of credit work in Australia, outlines their key advantages and disadvantages, and explores when they may — or may not — be appropriate.

What is a personal line of credit?

A personal line of credit is a revolving credit facility that allows you to access funds up to an approved limit. Unlike a traditional personal loan, you do not receive the full amount upfront. Instead, you draw funds as needed and repay what you use over time.

As repayments are made, the available credit increases again, allowing the facility to be reused during the agreed draw period.

How a personal line of credit generally works includes being approved for a set limit, accessing funds via bank transfer, being charged interest only on the amount used, making minimum monthly repayments, and retaining access to funds as long as account terms are met.

Key features often include revolving credit, interest charged only on the balance used, variable interest rates, flexible access to funds, and either unsecured or secured options depending on the lender.

Common uses may include emergency expenses, home improvements with uncertain costs, managing irregular income, consolidating higher-interest credit card balances, or covering short-term cash-flow gaps.

Pros and cons of a personal line of credit

A personal line of credit has advantages and disadvantages. Understanding both sides can help you make a more informed decision before applying.

Pros of a personal line of credit

Interest is charged only on what you use

One commonly cited benefit is that interest is calculated only on the amount you draw, not the full approved limit. If the credit is not used, no interest is charged on the unused portion.

This can make a line of credit more suitable for expenses that are uncertain or spread over time, as you are not paying interest on funds you have not accessed.

Flexible access to funds

A personal line of credit provides ongoing access to funds without needing to reapply each time money is required. Once approved, funds can be drawn when needed within the limit.

This flexibility may be helpful for emergencies, variable project costs, or income gaps for people with irregular earnings.

Reusable credit as you repay

Because a personal line of credit is revolving, repaid amounts become available again. This means the same credit facility can be used multiple times without opening a new loan.

For some borrowers, this can make a line of credit feel more like a longer-term financial tool rather than a one-off borrowing product.

Lower interest rates than many credit cards

Personal lines of credit often have lower interest rates than standard credit cards, although rates vary between lenders and applicants.

For people managing higher-interest card balances, this difference may reduce interest costs if the credit is used carefully and repayments are managed responsibly.

Can support your credit history if managed well

A personal line of credit is typically reported to credit reporting bodies. Making repayments on time and keeping balances manageable can contribute positively to your credit history.

Payment history and credit utilisation are important factors in how credit scores are calculated.

Higher limits than many credit cards

Lines of credit may offer higher borrowing limits than some credit cards, depending on your circumstances and lender criteria. This can make them more suitable for larger or ongoing expenses.

Cons of a personal line of credit

Variable interest rates

Most personal lines of credit have variable interest rates. This means rates — and repayments — can change over time, making it harder to predict the total cost or budget long-term.

Fees can reduce value

Some lines of credit come with ongoing fees, draw fees, or other charges. Over time, these costs can add up and reduce the overall benefit of the product.

Understanding the full fee structure is important before applying.

Risk of overspending

Easy access to credit can make it tempting to borrow more than planned. Without a clear repayment strategy, balances may remain high for extended periods.

This can lead to ongoing debt rather than short-term borrowing.

Credit requirements can be higher

Many lenders require a good credit history, stable income, and manageable existing debts. Applicants with lower credit scores may find approval more difficult.

Balances can be slow to reduce

Minimum repayments may be relatively low and sometimes interest-focused. Without paying more than the minimum, balances may reduce slowly, increasing total interest paid over time.

Secured lines carry additional risk

If a personal line of credit is secured against an asset, failing to meet repayments can place that asset at risk. While many personal lines of credit are unsecured, this is an important consideration for secured options.

When a personal line of credit may be suitable

A personal line of credit may be worth considering if expenses are uncertain or ongoing, you want emergency backup funding, you have irregular income, or you are consolidating higher-interest debt with a clear repayment plan.

When a personal line of credit may not be suitable

A line of credit may not be appropriate if you know the exact amount needed, are funding discretionary lifestyle spending, need fixed repayments, struggle with impulse spending, or already have sufficient savings.

In some cases, a personal loan or saving in advance may be a better option.

Credit24 Personal Line of Credit

A Credit24 Personal Line of Credit is designed to support flexible borrowing while maintaining a responsible lending approach.

Features include credit limits from $500 to $10,000, interest charged only on the amount used, flexible access to funds, reuse of credit during the term, no early repayment penalties, and access to funds via OSKO for eligible banks.

This option may suit borrowers with a clear purpose, stable income, and a disciplined approach to managing credit.

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Frequently asked questions

What are the main pros and cons of a personal line of credit?
Advantages may include flexibility, reusable credit, and potentially lower interest than credit cards. Disadvantages can include variable rates, fees, and the risk of overspending.

Is a personal line of credit better than a personal loan?
It depends on your needs. Lines of credit suit uncertain or ongoing costs, while personal loans are often better for one-off expenses with fixed repayments.

Can a personal line of credit affect my credit score?
Yes. Missed repayments or high utilisation can negatively affect your score, while responsible use may support it.

What credit score is usually required?
Many lenders look for scores around 650 or higher, though criteria vary.

How can I reduce risk when using a line of credit?
Having a repayment plan, paying more than the minimum, avoiding constant redraws, and treating it like a loan with an end goal can help.

Sources

• Responsible lending obligations – Australian Securities & Investments Commission (ASIC), MoneySmart
• National Consumer Credit Protection Act 2009 – Australian Government legislation

Disclaimer

IPF Digital Australia Pty Ltd, trading as Credit24, ABN 59 130 894 405. Australian Credit Licence 422839.

The information in this article is general in nature and does not consider your objectives, financial situation, or needs. Lending criteria, fees, and charges apply. For product details, eligibility requirements, and full terms and conditions, visit www.credit24.com.au.