What are credit line loans?
Let’s start with the basics. Credit line loans, or credit facility loans as they’re also known, are a set sum of money that a bank or credit card company agrees to lend to their customer, when that person needs it. The most common examples of credit line loans in the UK include a spending limit on a credit card or a debit card’s agreed overdraft.
How do line of credit loans work?
Customers who want to access credit line UK products, will first have to apply for credit with their bank, credit card provider or specialised bad credit lender. Once the lender accepts the application, a small amount of agreed credit will be made available directly attached to your UK bank account or a lender specific account. In other words, a pot of money will be made available for you to dip into if and when you need it.
Each month you can pay off the credit in full, or do it in small portions. You will be charged interest on top of your repayments - interest is a percentage cost or fee set by the individual lenders. Charges only occur when the credit line or overdraft is used.
How to apply for a credit line?
Once you’ve chosen a suitable lender who’s accepted your Choose Wisely loan application, getting your hands on a UK credit line in the UK can be as simple as following these 4 steps:
- Apply online
Pick a lender, then complete their online application journey which might include creating a profile in order to move forward. All lenders on Choose Wisely are authorised by the Financial Conduct Authority (FCA), this ensures that you are protected by rules outlined by the FCA - avoiding scams and loan sharks.
- Choose your desired amount of credit
Based on your circumstances, it’s now time to select how much money you’ll need to have available to borrow.
- Transfer the money to your account
If you’re using your bank overdraft, you won’t need to do this. However, if you’re getting a line of credit loan from an external lender, you’ll most likely need to attach the line of credit to your bank account before you can use it. Instead of being given a fixed sum like you would with a loan, a line of credit enables borrowers to dip in and out of funds as and required, only paying interest on what they borrow. Accounts can also be setup on weekends.
- Repay the credit
Finally, repay what you spend. You can do this all at once, or make repayments in small chunks if it makes it more manageable for you. However, to avoid potentially high-interest charges, it’s always best to pay it off as quickly as you can.
How to get an overdraft with bad credit?
Getting a bank account with an overdraft with bad credit isn’t always easy but there are specialised lenders, who aim to give everyone an equal chance. A bad credit overdraft at such a lender is often more affordable than conventional payday loans.
Just like any other way of borrowing money, the first step is applying for overdraft loans. The lender will then decide whether to lend to you based on factors such as borrowing history, available income and credit record.
Who provides credit line loans?
The majority of classic highstreet banks (Barclays, Lloyds, HSBC) and challenger banks (Starling, Monzo, Tide) offer overdrafts but the costs, terms and repayment periods can vary wildly between them and depend on an individual’s financial situation.
For example, it might be harder to get a credit line loan in the UK from Monzo or Barclays with a history of poor credit. In this situation, your best bet could be specialist lenders such as SafetyNet Credit and Drafty. These lenders look at more than your credit score when deciding your eligibility to access credit. That’s why they could be a good starting point for credit line loans uk.
What is the difference between a loan and a credit line?
Good question. Although they share several similarities, there are also a number of key differences between the two.
With a standard loan, a lender will offer and send the customer a predetermined amount of money upfront. Credit lines, however, allow people to borrow only what they need, when they need it.
For example, if you’ve taken out a loan and realise you need more money, you’ll have to take out an additional loan on top of the one you already have. With a credit line, the most you might need to do is request the lender to increase the amount of credit.
So, for those planning on borrowing a set large amount who don’t think they’ll need more, a loan could be the better option. However, for those looking to borrow 50 pounds who can see themselves needing to borrow 100 a short time down the line as a top-up, a credit line loan might be more beneficial.
Credit Line FAQ's
A credit card is a physical card that you can use to make purchases. A credit line enables you to draw funds and transfer them to your bank account, when you need it. Those funds can then be accessed by making a debit card payment or by setting up an online transfer to pay for bills, for example. A credit line is therefore closer to an overdraft.
When comparing lenders on Choose Wisely some direct lenders might soft search your credit history, in order to tell us if they accept your application in principle. This won’t leave a mark on your file. Once you apply with the lender of choice, they will do a hard credit search which leaves a mark on your credit record.
Most lenders will demand you have an active bank account and debit card as this will give them the option to facilitate automatic repayments - if you opt into that. It also helps the lender to decide on your eligibility and helps to prevent fraud as they can see if the account is active.