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How does a credit line work?

Cashflow is not something we can all control: sometimes, we need help to meet those unexpected expenses like vets’ bills or a one-off purchase such as a new tyre to replace a flat one. Regardless of how much you earn, everyone goes through the same or similar financial trials and tribulations from time to time and occasionally, you might just have enough to cover the expense with the remainder of your income, but other times – maybe it’s nearing the end of the month or you’ve already used your emergency fund and haven’t quite got the cash saved up yet – access to fast credit can really help you out.

Typically, you might be used to putting a payment on a credit card or taking out a small loan such as a payday loan to cover the costs, but have you ever considered using a credit line? As a relatively new product, credit lines don’t always spring to mind – maybe because you’ve never heard of one before or maybe because you just don’t know how they work.

What is a credit line?

A credit line is essentially a line of credit you can draw upon whenever you need a bit of extra cash to help you out. It’s a bit like a credit card in that you have a credit limit and you can make a minimum payment each month if you can’t afford to repay the full balance in one go. But unlike a credit card, when you withdraw cash from a credit line, it goes directly into your bank account. So, you can make your direct debits, bank transfer payments or even debit card purchases without setting up a new account or using an additional payment card.

How does a credit line work?

There are five basic stages to a typical credit line, and stage 4 and 5 will often recur on a monthly basis as a credit line is a revolving credit product:

Drawdown is just another term for withdrawing money or being transferred a loan. With a credit line, you can withdraw as much as you need up to your credit limit and then, at the end of your statement period, you will need to make at least your minimum payment to stay within the terms of your credit agreement and to continue using your credit line.

Your minimum payment is made up of the transaction fee, the interest that accrued on your withdrawn balance over the statement period and a proportion of the amount that you withdrew. At Polar Credit, this is the higher of either £10 or 5% of the amount you have withdrawn.

Where can I apply?

There are only a few different credit lines available at the moment, and all of them are accessible online. This is because making an application online is quick, easy, and likely to achieve a much quicker lending decision than any other method of application. Applying online also means that if your application is approved, you could have the funds you need within minutes, as the transfer will be automatically processed once you select the amount you wish to withdraw.

Are there any drawbacks?

As with any credit product, you should only apply for a credit line if you know you can afford your repayments and you are able to make the financial commitment that revolving credit requires. As you will repay interest on the amounts you borrow, you need to make sure the borrowing is affordable.

Credit lines are designed to be flexible. You aren’t subjected to withdrawing your full credit limit all at once and you don’t have to repay your balance in full each month, although only making your minimum payments will take longer to repay your balance, and the less you repay, the less you have available to use against future financial mishaps. Where possible, it’s usually a good idea to repay as much as you can towards any outstanding debts.

Benefits of using a Polar Credit Line

Polar Credit offers a credit line with the added bonus of actively trying to reduce the cost of your borrowing. We have a commitment to provide a sustainable credit product and to achieve this we proactively reduce our customers’ interest rates after their one year anniversary with us, and then every six months after that until they reach the minimum 29.9% pa, which is the same as most mainstream low interest rate credit cards.

A Polar Credit Line is accessible to those with a bad credit history, because we understand that even though your financial circumstances might have changed, getting access to credit can still be difficult and there’s no reason you shouldn’t be allowed to show that you are a responsible borrower and that you can manage your finances effectively. For more information on credit lines and how a credit line could benefit you, check out some of our other articles below.

More information

What is a credit line?

How would I benefit from a credit line?

Polar Credit’s commitment to sustainability

Have more questions? Check out our Info Hub.