A credit line, or a personal line of credit, is an amount of money that you can borrow from the bank when the need arises. You can draw money from this amount until the limit is reached. Much like having a credit card, you have a maximum credit limit on your credit line and may be charged an annual fee. A credit line is also often bundled with a personal cheque book and an ATM or debit card for cash issues and withdrawals.

A line of credit is different from a regular personal loan; the latter provides you with cash upon approval, whereas a credit line allows you to withdraw cash via an ATM or complimentary cheque book whenever you need it, although you can also start using it upon approval.

A credit line can also offer flexibility when it comes to the minimum payment. For example, some of the credit lines from banks offer a minimum payment option of 3% of outstanding balance rather than a fixed amount. This keeps payments more manageable.

The limit on your credit line can go up to 4 times the monthly income for the typical borrower. However, if your annual salary is on the higher end (e.g. S$120,000 annually), it may go up to 8 times your monthly income. Unlike a personal loan, your credit line is not disbursed to you directly. This makes a credit line more flexible, as you only borrow what you need, especially when you realise you do not need the full loan amount.

Unlike a personal loan, a line of credit typically has flexible repayment schemes. With a line of credit, you can withdraw cash whenever you need, and the flexibility also comes in the form of repaying early without incurring additional fees.

Some banks allow you to continue the line of credit as long as you just pay off the interest for the amount of credit borrowed. Others, however, require you to pay off both the interest and principal (amount borrowed) at the end of the loan term.

There are a few ways for you to make your repayments, though this differs from bank to bank. These ways include:

• Internet banking (iBanking)
• AXS
• ATMs
• Cheque deposit
• Cash repayment at bank branches
• SingPost branches
• SingPost S.A.Ms

People with periodic, short term need for funds. Upon approval of the credit line, you can withdraw from this loan amount whenever you need the money. For example, small and medium sized enterprise (SME) owners or day traders could choose to get a credit line to fit their short term liquidity needs with repayment flexibility.

Banks and financial institutions offer personal lines of credit in amounts ranging from 2 to 8 times your monthly salary. This loan amount depends on your monthly salary, citizenship, as well as your repayment record.

The prevailing interest rate for a personal line of credit usually ranges from 18% to 22%. This is lower than the 26% to 28% charged by credit cards. However, some banks and financial institutions also offer low interest rates or interest-free deals for the first few months.

There is no fixed repayment period for a personal line of credit. This allows you to continuously borrow from the credit line as long as you don't exceed the credit limit. However, if you are a spendthrift who tends to spend more than you earn, you could consider applying for a personal loan instead. A personal loan has a regular repayment schedule in place and this would help you to avoid over-borrowing.

A line of credit allows you to access the credit facility multiple times. This is unlike a personal loan that provides you with a single loan amount. A line of credit also allows you to borrow only what you need. You have the option to choose a repayment term that is manageable for yourself.

Check out the article on 3 advantages of a line of credit and how you can benefit.

While a credit line gives you flexibility to draw on the funds only when you need it, the interest rates charged for a line of credit is higher than other loan options, such as a personal loan. A personal loan offers interest rates from 3.5% to 10.8% p.a., lower than the 18% to 22% p.a. charged for a credit line. Also, not all banks offer foreigners the option to apply for a line of credit.

A personal line of credit can be a loan option to consider if you have plans to borrow money periodically. It also provides you with flexible repayment terms. However, there are also other loan options available - in this case, there are SME loans available for small businesses in Singapore.

Not all banks offer a personal line of credit. Banks that offer a credit line include: UOB, DBS, OCBC, Citibank, HSBC and Maybank. To decide on the credit line that is best for you, you can compare by:

• Annual fee
• Prevailing interest rate
• Minimum monthly repayment

You can also filter based on the provider. For example, you may choose the bank that you do most of your banking with, or a new one that offers new-to-bank promotions such as cashback or lower interest rates.

Besides the interest that you pay on the credit that you draw, there are also other fees that you could incur when you get a line of credit. This includes:

• Annual fee: S$60 to S$120
• Late payment charges: S$75 to S$125
• Overlimit fee: S$40 to S$50
• Handling fee/returned cheque: S$40

Here are some tips to keep in mind when using a line of credit:

• Ensure that the line of credit you apply for is sufficient as there are fees incurred when you borrow over the limit
• Borrow only what you need because interest will be charged on the credit used
• Take note of other charges that you could incur
• Make early payments if possible to reduce future interest payments
• Keep a lookout for ongoing promotions

If you are already sure about the amount of money you need to borrow, you could consider taking a personal loan instead. A personal loan offers interest rates lower than the interest rates for a credit line. Currently, the personal loan interest rate ranges from 3.5% to 10.8% per annum. This interest rate varies across banks and depends on factors such as the loan tenure. There are also various promotions for personal loans, offering perks such as cashback or lower interest rates.

To apply for a credit line, you have to be:

• At least 21 years old
• Minimum annual income of S$30,000 (for Singapore citizens or Singapore Permanent Residents). If you earn between S$20,000 - S$29,999 banks such as DBS and OCBC still offer credit lines, at a higher prevailing interest rate.

Some credit lines are also only available to Singapore citizens or Singapore Permanent Residents.