Line of Credit Loans

The line of credit loan, also known as revolving credit or equity loan, works like a credit card. This loan provides increased flexibility, as the lender sets a credit limit that is secured against the property. Cash can be withdrawn against this limit through cheque or debit transactions.  Furthermore, the cash is made available upon every loan repayment made by the borrower. This loan however, has a slightly higher interest rate.

A line of credit loan offer’s repayment options in the form of interest only repayments, top off interest payments, regular principal reductions and larger lump sum reductions. It adheres to the official interest rate by the RBA, so interest rate increases are highly possible.

A line of credit loan requires the discipline to ensure that the balance of the loan is reduced over time, if it is used for principal residence.  It has the potential to tempt the borrower to draw funds for personal means that they may find difficult to repay. It can also cause confusion with tax return declarations.