Every day millions of people worldwide use credit to manage their daily finances, unexpected payments and lifetime events. Instant payday loans are a common choice when it comes to needing cash quickly to cover emergency expenses. But short term loans are not the only option on the market: recently, credit lines have become increasingly popular because they combine the better aspects of a payday loan and a credit card. While still having instant access to cash delivered straight into your bank account, a credit line is a revolving credit facility, so you have continuous access to credit and you only need to make minimum payments if you can’t afford to repay the full balance one month.
At the moment, there aren’t a huge number of payday loan alternatives for people with a bad credit file, and even those with a good credit history might find the current credit options unsuitable for their needs. If you use payday loans a few times throughout the year, or you’re just looking for a new type of credit to better satisfy your financial circumstances, why not compare payday loans and credit lines?
A payday loan is a small amount of cash you borrow for a short period of time and typically repay on your next payday. Payday loans are categorised as high cost short term credit because of the high interest rates charged on the loans, however their short term nature usually means they aren’t as costly as most people imagine. For people with a thin credit history or a low credit score, payday loans may be the only option available if they need money quickly to meet urgent expenses.
A credit line is a relatively new type of credit. Similar to payday loans, credit lines tend to be more accessible to people with a poor credit history. A credit line means having a credit limit, which is the maximum amount you can borrow at any one time, and making minimum payments if you can’t afford to repay the balance in full each month. You are only charged interest on the amount you have actually borrowed, and as long as you stay within the terms of your agreement, you can borrow and repay as many times as necessary to assist your monthly cashflow.
If you like using payday loans because of the short term nature of the agreement, then a credit line might be a suitable alternative for you. Although a credit line is an ongoing form of credit, you can use the facility as a short term line of credit as you will only be charged for the actual amount borrowed – not your full credit limit. So, if you only need £100 for a few weeks, then you will only be charged interest on the £100 for the time that you borrow the money. As credit lines have a much lower rate of interest that payday loans, it usually works out to be a cheaper way of borrowing small amounts of cash over short periods of time.
If you don’t use your credit line, you won’t be charged anything at all. Sometimes, it can be a financial safety net to know you have access to quick credit when you need it, without having to go through the process of submitting a new application each time.
Borrowing via a payday loan or a credit line means the funds are transferred directly into your bank account – there are no additional payment cards to manage, and the repayments are usually collected by continuous payment authority (CPA). This means that although the repayments remain your responsibility, as long as your card details are up to date and there is sufficient money in your account, your repayments should be collected automatically. This is the same for both credit lines and payday loans, however credit lines have the added advantage of only needing a minimum payment each month. So, if something were to throw your budget off, you don’t have to stress about repaying your balance in full.
The main difference between credit lines and payday loans, apart from the revolving nature of a credit line, is the interest rate. Payday loans are high cost credit which means the APR is over 100%. Although APR can be misleading if the borrowing duration is only a matter of weeks or months, it’s almost always better to choose the borrowing option with the smallest interest rate. At Polar Credit, we also periodically reduce the rate of interest on your credit line to actively decrease the cost of your borrowing.
Payday loans certainly have their usefulness, and for a long time, they have been the only way for people with a limited credit history to borrow money. However, credit lines are slowly starting to change this. As a reasonable alternative to payday loans, a credit line is flexible and just as quick as a short term loan. Ultimately, it’s up to you to decide which type of credit better suits your circumstances, but there is no harm in researching the different options available as you might find a new product which works for you – and you might also save a little money on repayments, too.
Visit our Info Hub for more information about credit lines.