A Guide On Credit Lines in Philippines with Examples

Last updated: April 11, 2024
Written by: Digido Financial Writers Team | Reviewed by: Anna Kireeva

Key takeaways:

  • Credit line is a revolving credit limit available anytime while the line is active
  • You can obtain and repay only a part or the whole amount of the borrowed money
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Lines of Credit Philippines

A line of credit is a popular option of revolving lending agreements. One of the most familiar credit line cases is a credit card, but it’s not necessarily one.

Way back before, all cashless transactions would come through credit cards. It was the only easy way to pay your purchases on credit. But nowadays, it is possible to pay for your goods on credit without having a credit card.

There are a lot of digital wallets and payment options accessible today, providing convenience to all users. And these virtual payment options, just like credit cards, are also using a line of credit.

In this guide, we’ll break down everything you need to know about lines of credit: how they work, the different types available, and how to use them effectively.

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What Is a Line of Credit

A line of credit (or LOC) is a revolving loan when a bank approves a particular credit limit of funds that you can use anytime you need them. You can use only a part of your limit, or borrow the whole amount of approved funds.

This amount can vary upon your request or a bank’s decision: in most cases, you can request to enlarge or to decrease your line.
You don’t need to pay any interest rates if you have not taken any funds from your active credit line.

Speaking about repayments, you repay the borrowed amount with a particular interest rate. This rate may vary between 2% and 60% — this depends much on the lender, your credit history, the collateral, your purpose, and other factors.

line of credit

LOC usage options:

  • regular purchases
  • major expenses, like weddings or home repairments
  • unexpected expenses, like in case of an illness
  • finance projects with unclear costs

Lines of credit are not normally used to fund one-time big purchases such as flats or cars. It is recommended to go to a bank and take a loan for such a thing.

To use the LOC for purchases and other purposes, you have the following choices:

  • Get a credit card connected to your line. This card can be used for purchases, cash advances, and sometimes for balance transfers, depending on the specific terms of the LOC.
  • Pay with special checks. These can be used for payments to individuals or businesses that do not accept credit cards.
  • Pay via bank transfers. Direct transfers from your LOC to a checking or savings account are also common. This method can be used for larger transactions
  • Use dedicated mobile apps for on-the-go management of your LOC. These apps enable you to transfer funds, monitor balances, and execute payments directly from your smartphone.
  • Integrate your line of credit with an e-wallet to streamline digital transactions. E-wallets allow you to store funds from your LOC digitally, facilitating easy access for contactless payments, online purchases, and peer-to-peer transfers.

The repayment rules may differ, too. Here are three most common options:

  • You repay a certain percentage of the amount monthly.
  • You repay all the borrowed money once after a particular period.
  • Flexible repayment system that allows you to make payments beyond the minimum required, allowing you to reduce your principal balance faster.

But do not confuse a credit card as the same with a credit line. They might be similar in many ways, but they still have differences. A credit card is a payment tool and not a borrowing tool like a line of credit. To give more clarity, we will tackle further details of their differences later in this article.

what is a line of credit

How Does the Credit Line Work

A line of credit, in simple terms, is a borrowing option. It gives you constant access to a particular amount of funds. So, you receive this amount and can use it to the full, or just borrow a part of it whenever you need.

When approved, you have a set credit limit upfront that you can use whenever you want.

Like any loan, it has an interest rate. A positive thing is that you pay this interest only for the part of the money you borrowed. Then, of course, you need to repay this amount, and the repayment terms depend on your agreement with the bank.

Typically, lenders set monthly payments for the term of the credit line. But you can pay the amount instantly as long as you don’t pay below your minimum monthly installments. Moreover, you can borrow again, considering you won’t exceed your approved total credit limit.

Credit Line Example Scenario:

Suppose you’re approved for a Line of Credit (LOC) of Php 250,000.00 at an interest rate of 3.49% per month. This means you have a reserve of funds available for use at any time, without incurring any fees or interest until you actually withdraw money from the line.

  • Transaction:

After two months of not using the LOC, you decide to withdraw Php 10,000.00 for home repairs.
Interest Calculation for the First Month After Withdrawal:
Amount Withdrawn: Php 10,000.00
Interest for One Month: 3.49% of Php 10,000.00 = Php 349.00

  • Repayment:

For simplicity, let’s calculate a straightforward scenario where you aim to repay the Php 10,000.00 plus the first month’s interest over 6 months. The initial calculation, without accounting for further interest accrual, would be:

Total Owed After First Month: Php 10,349.00
Divided Over 6 Months: Approximately Php 1,724.83 per month

This does not take into account interest that would continue to accrue on the remaining balance, but banks often use more complex amortization schedules to calculate exact repayment amounts, which would slightly adjust the monthly repayment to ensure the loan and interest are fully paid over the term.

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Line of Credit Examples and Options

While all credit lines work similarly, they have different terms, interest rates, repayment conditions, and requirements to a borrower.

For example, sometimes, you need to secure your LOC and risk collateral, but get a lower rate of interest in return. Other lines don’t require any collateral, but will most likely have smaller funds limits and higher rates.

Another difference you may face when looking for a LOC is the type of borrower: Philippines banks offer such loans for both individuals and businesses.
Long story short, here are some types we can highlight when discussing LOCs.

✅ Revolving and Non-Revolving Credit Lines

In fact, a LOC is always a revolving loan — just by its nature. However, people sometimes search for non-revolving options, most likely meaning standard personal or business loans, so we decided to explain the difference here — to boost the overall awareness of the correct terms!

  • Revolving LOCs

Revolving LOCs allow you to borrow money from your limit again and again. A revolving credit line, also known as open-end credit, you can take any amount from your loan, repay it — and the line revolves, so you can use it on! You do not need to reapply for another credit limit, it stays fixed during its whole lifetime value.

In other words, a revolving line means constant access to a particular funds limit.

Example: Imagine you have a credit card with a Php 500,000.00 credit limit. You used Php 200,000.00 to purchase new business equipment. Your agreement with the bank implied you will need to repay this amount in a single amount after six months, and you actually did this. Now you have your Php 500,000.00 limit back, and can borrow any other amount from it again.

One of the best examples of a revolving credit line is the credit card. With credit cards, it is easier for cardholders to make purchases when they don’t have available cash at hand. They can use their credit up to their approved total limit. Each billing cycle, when cardholders pay the required payment, the credit amount replenishes and they can borrow it again.

Typically, revolving credit lines give rewards if borrowers access them with a points-earning program, which is common for credit cards.

However, not all revolving credit lines are like credit cards. There is also a secured line of credit where lenders require collateral – usually, it involves an asset. If the borrower will not pay the loan, the lender will take the collateral. Since the loan has an asset attached to it, the interest rates are typically lower.

  • Non-Revolving LOCs

Non-revolving LOCs are about a fixed amount that you take from a bank and need to fully repay within a period stated in your agreement. You cannot borrow it again once you repay it. Such credits are often used for specific purposes.

Example: Suppose you decide to apply for a personal LOC to finance your home repairments. You got an approval for Php 20,000.00. You used Php 15,000.00 of this amount — and didn’t require the rest Php 5,000.00. However, you need to repay the whole sum of Php 20,000.00, with the interest rate for the whole amount — including the Php 5,000.00 you haven’t used in fact.

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✅ Secured and Unsecured Credit Lines

There are lines that need and don’t need collateral. Let’s compare them with the help of examples.

  • Unsecured LOCs

Unsecured LOCs come without any collateral, so you don’t risk any of your property. Instead, a bank will check your so-called creditworthiness — e.g. how reliable you are for a particular credit limit and interest rate.
This check might include:

  • Your credit history — how responsibly do you usually repay your loans?
  • Your income — how much do you earn, and, what is even more important, is this amount bigger than all your debts?
  • How many active credits do you have at the moment of application?

Unsecured lines of credit are pretty risky to lenders, so banks usually offer higher interest rates and lower credit limits.

Example: Let’s say, you urgently need a surgery and lack money for it. You don’t know how much your overall expenses will be, so you apply for a credit line. As you don’t want to risk your house or vehicle, you apply for an unsecured variant. You have a strong credit history and stable income, so you are easily approved for Php 100,000.00. However, a bank decided to give you a pretty high interest rate, and you ended up with a 30% rate on a monthly basis.

Note: unsecured LOCs can have interest rates of up to 60% in some cases. (1)

  • Secured LOCs

Secured LOCs are the lines that require some collateral: a real estate or a car, in most cases. If you are still repaying a mortgage for your home, it can still be used as collateral, by the way, so don’t refuse such an option if you need it. One of the popular secured LOCs types is a home equity credit line. (2)

Such lines are obviously safer for a lender, and this is why they usually have more competitive rates and smaller credit limits. However, they are riskier for borrowers: in case you fail to repay your loan according to the terms, your property will be pledged by the lender.

Example: Suppose you’re a homeowner looking to finance home improvements. You apply for a secured LOC with a house equity as the collateral. The bank estimated the value of your home and the outstanding mortgage balance and approved a Php 50,000.00 limit at a 10% monthly interest rate. In case you take a part of this limit, or borrow the full amount, and fail to repay, a bank will have the right to take your home as a collateral.

✅ Lines of Credit with Variable and Fixed Rates

Another way of how we can divide LOCs by types is their interest rates. While we are mainly used to fixed interest rates when we take a loan, there are LOCs that can have a so-called floating interest. (3) Of course, it doesn’t change completely randomly, but fluctuates after a particular period stated in your agreement.
As usually, let’s look at the example:

Example: Suppose you have a credit line of Php 20,000.00 with a floating interest rate. According to your agreement with the bank, you will repay any amount you take from this line with a 4% interest. After six months, this rate will be recalculated according to Manila Reference Rates (the average rates suggested by Bangko Sentral ng Pilipinas). If the MRRs become higher, you will need to pay a bigger interest rate. If they fall down, you are lucky this time — and will pay less, at least until the next period.

line of credit Philippines

Personal and Business Lines of Credit

LOCs are available for personal or business needs. They work just the same; the difference is that businesses usually get bigger limits and lower interest rates.

In business, you cannot always ensure that all your customers will pay on time. To sustain the cash flow in your company, it is helpful when you have funds to pay the company bills.

The business line of credit works like a credit card. The business owner will get a credit line at the approved total limit. It is different from a business loan as you can only borrow an amount that you need at the moment.
However, when your business is growing, you might need larger spending limits. This is when you will need a secured business line of credit. With this option, you can get more money to borrow. But to secure your credit payments, collateral may require from you – such as real estate. Since there is collateral in this credit line, you can expect that it has cheaper interest rates.

Personal lines of credit are flexible loans that individuals can use for various personal expenses, much like a credit card. Personal LOCs are usually unsecured, meaning they don’t require collateral like a home or car. This can make them a bit harder to qualify for than secured loans, and they might have higher interest rates compared to business lines of credit or secured personal loans. Personal LOCs are ideal for handling unexpected expenses, consolidating debt, or funding projects where the total cost isn’t known upfront.

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Let’s for example compare business and personal loans in the same Philipino bank:

Point of Comparison Personal Line Business Line
Amount Up to Php 250,000.00 Up to Php 20,000,000.00
Common requirements 21-65 years old, Philippine citizen Active Philippine-based business
Income requirements Php 10,000.00 per month or more
Documents needed Government-issued ID, proof of income  Government business documents, proof of operations, bank statements
Interest from 1% per month from 0.99% per month

When choosing a credit line, it is helpful if you first evaluate the:

  • loan terms of the bank or the loan facility
  • amount sufficient for your business needs to sustain cash flow
  • interest rates
  • repayment terms

line of credit example

Credit Line and Fast Loan: What Is the Difference

The main difference between these two is the nature of the credit agreement: while a loan is a non-revolving credit, a line always revolves. So, you take a loan once, and need to repay the whole amount, and a LOC might patiently wait when you need it, and never ask for fees, rates of interest, or commissions until you withdraw funds from it.

If you are thinking of borrowing money, it is better to assess your financial need and the options you have. So, here are the differences between the line of credit and the fast loan.

✅ Credit Line

  • Predetermined borrowing limit that is available to use anytime. This is a given benefit of the credit line. But unlike a fast loan, the borrower must undergo a credit evaluation process first when applying for a credit line.
  • Flexible and has a variable rate of interest. Like a fast loan, it offers cash flexibility to the borrower. However, its interest rates can change over time. Its interest rate may rise, resulting in you cost more.
  • Funds that you can use for any purpose. With the credit line, there is no requirement as to where you should put the money you borrowed.

✅ Fast Loan

  • Streamlined application and quick release of funds. Unlike the credit line, the application for a fast loan is easier. Not having credit is not necessary for approval. Thus, it’s faster than getting a credit line.
  • Considerable maximum amount to borrow. With the fast loan, you won’t worry about how much you can borrow. Typically, fast loans offer a significant maximum amount.
  • Flexibility of the repayment structure. Lenders usually offer flexible payment options to the borrowers. Hence, it is more workable on your end.
  • Increasing loan limits. When you sustain a strong track record, the lender will increase your loanable amount.
Line of Credit Fast Loan
Access to Funds Constant access to a credit limit, you can borrow any sum within the credit limit A particular amount that needs to be fully repaid after borrowing
Repayment You can borrow a part of the limit, pay it back, and borrow another part of the limit again You must repay the whole amount you borrowed until the deadline set by your agreement with a lender

If you need money, you can apply for a Digido loan. Digido loans are available for all employed Filipino residents from 21 to 70 years old and can serve as a great alternative to credit lines. With Digido, you can instantly borrow up to Php 25,000.00 online within just 5 minutes. The interest rate is 0% for the first seven days. No collateral is needed, and the loan approval is performed automatically in less than five minutes.

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The Line of Credit and Credit Card: Which Is Better?

credit line example

In fact, a credit card is one of the LOC options: a card is always tied to a line. However, a credit line does not necessarily need a credit card.
While both options are similar, a credit card is a more specific and complicated product. It usually comes with a range of special offers and conditions from a bank, and gives some room for non-interest repayments, cashbacks or some other perks. However, the same borrower will most likely receive a more competitive rate of interest for a credit card rather than a credit line.

Here is the full list of the differences between these two products:

Line of Credit Credit Card
Access to Funds Up to a credit limit, used for any purposes Up to a credit limit, used for any purposes
Interest  Applied only for the sum that you took from a line; usually more profitable than the interest rate of credit cards  Also charged on the borrowed amount, typically higher rates than lines of credit
Repayment  You need to repay the line before you can borrow another part You can spend money from your credit card line anytime, even if you already have a debt
Extra features Usually none Grace period, cashback options, additional bonuses depending on the bank

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Advantages of Credit Lines

Whenever you need immediate cash, borrowing from credit lines is one way to fund your finances, especially your business expenses. Additionally, credit lines also provide these benefits:

  • Flexible financing
    One of the most significant benefits of a credit line is its flexibility. You can borrow cash anytime you need it, repay, then borrow again. For business owners, this can be very useful when your company needs cash right away. Additionally, it has zero monthly service fees and a lower interest rate. In some cases, you can also negotiate its interest rates.
  • Controls your cash flow
    With the flexibility that the line of credit gives, it will be easier for you to control your cash flows. You can cover the unforeseen costs without hurting your pocket. At the same time, it is useful when creating a financial budget as you can estimate how much you spend.
  • Maintains a good credit score
    When you avail of a credit line, you can keep a good credit score. This is beneficial for business owners as they can easily get a loan to any financial institution. With a good credit score, fast approval of the loan is highly possible.
  • Optimize business growth
    For business owners, it is essential to adapt to the highly competitive industry. Knowing that you have funds readily available, you can run your cash flow smoothly. You can meet the demands of the market and cater to opportunities without worrying about your finances.

non collateral loan

What Are The Risks of Using Credit Lines?

  • Like any borrowing practices, this banking product involves a range of risks that you need to consider. Here are the most common ones:
  • You might fail to repay the line. This might lead to fees from a bank, spoilt credit history, and further difficulties with obtaining other loan products, including a mortgage, in the future.
  • You might lose the collateral. In case you backed your loan with some property, a failure to repay will result in losing your assets.
    The interest rate might rise. Some bank agreements have fluctuating interests, which means that every next period can become more expensive in terms of repayments.
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Line of credit is a great alternative to loans and credit cards thanks to its comparatively lower rates of interest and convenient repayment conditions. Being a revolving credit, it gives flexibility and might serve as a reliable safety net for your business or personal needs.

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  • Are there special LOCs for businesses?
    Yes, banks usually have special offers for entrepreneurs, with lower interest rates and bigger loan amounts.
  • What is the average interest for a credit line?
    Usually, the interest charge varies from 2% to 60%. It depends on the particular credit rate of a borrower, the amount of the line, and also on the collateral, if it is required.
  • Can I increase or decrease my limit?
    Yes, depending on your agreement with the bank, you can request for changing your limit.
  • What are the potential risks associated with using a credit line?
    Some biggest risks involve losing your collateral, if you secured your line and failed to repay the portion of the line. Besides, an active LOC is considered a loan by banks and might affect your overall credit score. Also, a fluctuating interest makes your agreement riskier.
  • What do banks usually check before approving a credit line?
    In most cases, a bank checks a lender’s credit score, annual income, and a debt-to-income ratio before approving a line of credit and determining its limit. In some cases, banks estimate some extra conditions: collateral, credit history length, etc.
Disclaimer and Editor’s note


Digido Financial Writers Team is a team of experts in the field of finance and credit, specializing in writing articles for Digido blogs.
Anna Kireeva
Author pages:
Anna is a marketing communications professional who specializes in digital marketing strategies and long-form content.

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