If you occasionally face unexpected expenses after you’ve already budgeted for the month then you’re probably aware of payday loans and how handy they can be in times of cashflow shortfalls. Although you may try to keep your finances in order, no one can escape occasionally needing to top up their finances for the rest of month which usually results in applying for a short term loan at the last minute. However, there might be a better, more sustainable option available that acts as a great payday loan alternative.
Credit lines are a relatively new product which aim to bridge a gap in the financial services market – and not just bridge the gap between your paydays. Like a credit card, a credit line allows you to spend money within a credit limit and you can pay your balance at the end of the month, or if you can’t afford, or don’t want, to repay your full balance each month, you can just make a minimum payment. However, they are similar to payday loans or instalment loans in that when you withdraw the cash, it goes directly into your bank account.
A credit line is a revolving credit product. If you’re unaware of the term, a revolving credit product just means it’s ongoing, like a running account. Rather than having one application and one repayment date, you make one application and then you can continue to withdraw and repay your balance on a month by month basis. Overdrafts and credit cards are other examples of revolving credit.
Overdrafts and credit cards are both also alternatives to payday loans, and probably more of a first thought than payday loans. But there is a small drawback with this mainstream type of credit: they’re usually only available to those with a good credit history. This means, if you suffer with a poor credit history or you’re just starting out on your credit journey, overdrafts and credit cards can be inaccessible.
Credit cards usually have a high credit limit as well, so even if you only need £100 here and there, you might have access to £2000 or even more. While this isn’t necessarily a bad thing in all cases, if you don’t have a strong grip on your finances or maybe you have a variable income, you might find it difficult to make your repayments on such a large amount of credit and suddenly find yourself in arrears.
Regardless of the credit product, it’s important to remember that you should never borrow more than you need to.
If you can, you should try and put a little money away each month so that you can use a dedicated savings account to cover emergency bills. Even if you just put £10 - £20 into a savings jar every month, you’d soon have enough to cover most unexpected bills. However, while this would be an ideal solution, it’s not always that easy to just start saving, especially if most of your income is already accounted for.
So, what are the benefits of using a credit line? If you haven’t quite got your savings in order just yet, having access to fast cash can be very important. If your application is approved, you can withdraw cash from your credit line whenever you need to, and, because the funds go straight into your bank account, you don’t need an additional payment card – and you don’t need to worry about having lots of different banking accounts.
As we mentioned earlier, you only need to make a minimum payment to keep your account up to date, so if you do have a shortfall in your income one month, you don’t need to stress about repaying your full balance. While only making your minimum payment each month will take you longer to repay your full balance, it can be a nice fallback option when money is just a little too tight once or twice a year.
Similarly, if you find you have a little spare income after paying your priority bills, then you may wish to repay your total balance, or even just a large chunk of it. Credit lines are flexible so you can use them to best suit your financial circumstances. Apart from reducing the total amount of interest you pay, paying back more than your minimum payment each month means you’ll have a larger amount of available credit should another payment pop up out of the blue!
At Polar Credit, we will only approve you for a credit line that we believe you’ll be able to affordably repay, rather than just approving you for the maximum limit. We want to ensure that we always lend money responsibly, and we want our credit line to be a sustainable financial product for you.
While your application may be approved for a certain credit limit, we will review your account every so often in case you would like to increase or decrease your credit limit. We also have a commitment to our loyal customers and to rewarding those who borrow responsibly, which is why we will also reduce the rate of interest you pay on your borrowing with us every 6 months after your one year anniversary.
Although a payday loan may be your immediate choice when it comes to borrowing cash quickly, there’s no reason you couldn’t try an alternative. With funds available on the same day your application is approved, getting the cash you need is just a quick as a payday loan, and your repayments on a credit line might work out more beneficial to your financial circumstances.
More questions? Check out our FAQs section.