Line of Credit: The Three Types Explained in One Place

August 20, 2026 4 Min Read

Search “line of credit” and you’ll land on either a home loan guide or a business finance guide, never both. Here’s a plain map of the main types, how a line of credit compares to a credit card, and a real worked example of how the interest actually works.

Quick Answer: Line of Credit

A line of credit is a flexible loan that lets you borrow up to an approved limit, repay, and borrow again, paying interest only on what you’ve drawn. In Australia, the three main types are home equity (secured against your property), business (secured or unsecured, for company cash flow), and personal or unsecured (smaller limits, no asset attached). Each has a different risk profile, so knowing which type you’re looking at matters before comparing rates.

The Three Main Types

Home equity line of credit is secured against your property. It lets you draw on the equity you’ve built up, usually up to around 80% of your home’s value. It works a lot like an offset or redraw facility.
Business line of credit funds company cash flow. It can be secured against business assets or unsecured. It’s built for covering short-term gaps like payroll, stock, or seasonal dips in revenue.
Personal or unsecured line of credit has smaller limits. It’s not tied to your home or business assets. Lenders usually cap it lower and charge a higher rate to offset the added risk.
The type you need depends on what’s backing the credit. If you own property with equity, home equity is usually cheapest. If you’re a business owner, a business LOC suits operational needs. Without an asset to secure it, personal is the fallback.

Line of Credit vs Credit Card

Both are revolving credit, which is the core similarity. You draw funds, repay, and the limit becomes available again. A personal loan, by contrast, is a fixed lump sum.
A line of credit usually offers a larger limit. Credit cards typically cap out lower. A line of credit, especially one secured against property, can run into the hundreds of thousands.
Interest rates tend to differ too. A secured line of credit often charges less than a typical credit card rate, since the lender has an asset behind it.
Access methods differ in practice. Credit cards work at the point of sale everywhere. A line of credit is usually accessed by transferring funds to a linked account first.

How Interest-Only-on-Drawn-Funds Actually Works

You’re charged interest only on what you’ve actually drawn. If your limit is $50,000 and you’ve drawn $10,000, interest applies to that $10,000, not the full limit.
A worked example makes it concrete. At 7.00% per annum on a $10,000 drawn balance, that’s about $700 a year in interest. Your approved limit might still be $50,000.
Undrawn credit typically costs nothing in interest. The limit itself is just approved access, not a balance you owe until you actually draw on it.
Repaying frees up the limit again. Pay back $5,000 of that $10,000, and you can draw it again later without reapplying. You just need to stay within your approved limit.

Risk Profiles Differ by Type

Home equity risk is tied to your property. Falling behind on repayments here puts your home at risk, since the loan is secured against it.
Business LOC risk depends on whether it’s secured. A secured business line of credit puts business assets on the line. An unsecured one relies more heavily on the business’s ability to repay.
Personal or unsecured LOC risk sits with your credit profile. There’s no asset to lose directly, but missed repayments still damage your credit score. They can also trigger higher rates or account closure.
Variable rates add risk across every type. Most lines of credit run on variable rates, so repayments can rise if rates move, regardless of which type you hold.

FAQ: Line of Credit

What is a line of credit?
A flexible loan with an approved limit you can draw from, repay, and draw again, paying interest only on what you’ve actually borrowed.

What are the main types of line of credit in Australia?
Home equity (secured against property), business (secured or unsecured), and personal or unsecured (smaller limits, no asset attached).

Is a line of credit the same as a credit card?
Similar in that both are revolving credit, but a line of credit usually offers a larger limit and often a lower rate, especially if secured.

Do I pay interest on my full line of credit limit?
No. Interest applies only to the amount you’ve actually drawn, not your full approved limit.

Which type of line of credit is riskiest?
Home equity puts your property at risk if you fall behind. Unsecured personal or business lines of credit put more weight on your credit profile and repayment ability instead.