If you’ve ever encountered a financial outlay for which you weren’t prepared, you’ll know how stressful it is. Of course, these large payments tend to land far away from payday, which is why we sometimes need a cash boost to bridge the gap. Searching for a payday loan, short term loan or line of credit can be overwhelming. With a wide variety of products available on the market, it’s often hard to decipher which one is right for us.
A short term loan or line of credit is a commitment, so you’ll want to know the ins and outs before you sign on the dotted line. Here at Drafty, we like to keep things simple, which is why our blog will equip you with all the information that you need (minus the waffle).
You’ll find the similarities, differences, requirements and implications of a line-of-credit loan and a short term loan – supporting you to make the right decision for you.
What is a line of credit?
Simply put, a line of credit is an alternative to loans, overdrafts and credit cards. They’re a flexible, easy-to-use pot of cash into which you can dip whenever you like. Unlike a short term loan for bad credit, if you’re not using your credit line, you don’t pay a thing – and you only pay interest on what you use.
Here at Drafty, we know a few things about a line of credit agreement and our simplified process is as follows:
- If approved, you can borrow up to £3000 and cash is sent to your bank in 90 seconds.
- As long as you repay the minimum amount each month, you can choose for how long you want to keep your credit line open.
- If you don’t draw any of the money from you’re approved credit limit, you don’t pay anything.
- You can repay a little extra at any time and you’ll save on interest. Plus, you can draw within your credit limit anytime without needing to reapply as long as you keep up with your repayments – Representative 96.2% APR (variable).
Credit lines like Drafty offer a fresh perspective, helping you to boost your finances while staying in control.
What is a short term loan?
Short term personal loans are fairly self-explanatory. You borrow money from a short term loan direct lender and arrange your repayments accordingly. The agreed amount that you borrow gets paid into your bank account ready for you to use.
As the name suggests, short term loans are available for a small amount of time. However, as the borrowing period is limited, repayment costs can be high. Also, if you struggle to pay back your money due to unforeseen circumstances, you could find late fees added to your repayments.
If you’re looking for a quick loan and are confident that you’ll pay back the money despite added fees, a guaranteed short term loan might be a viable option.
Similarities between a line of credit and a short term loan
Both are short term lending options
A line-of-credit agreement and a short term loan are both designed to cover temporary financial outlays – an alternative to a payday loan. Both lending options offer money quickly, helping to tide you over when you need it most.
Whether you encounter a broken boiler or need a new car tire, both options are viable ways to boost your cash flow in the short term. However, a line-of-credit may offer a longer lending period if that’s what suits your situation.
Interest rates are variable depending on your choice, lending period and company. It’s worth noting that – more often than not – the shorter the borrowing period, the higher the interest rate. That’s why it’s worth exploring your options before you jump in.
Both funds are transferred to your bank
Both short term financial loans and credit lines work by transferring money into your bank account quite quickly. Once you’ve answered any specific questions and agreed to the terms and conditions, you’re good to go.
Both can help your credit score – if you meet your repayments
If you use your line of credit or short term loan responsibly by meeting your repayments, you could boost your credit score. Future lenders might see it as financially responsible if you pay the money back on time and you don’t take out credit too frequently.
Differences between a line of credit and a short term loan
A line of credit allows you to borrow more
As the name suggests, a short term loan is designed to cover unexpected costs over a short period. However, where a short term loan has a rigid repayment scheme, a line of credit still offers money in the near future, just with added flexibility.
Drawing off our own experience, a Drafty line of credit lets you use and reuse your credit whenever you need as long as your account is open with us and you have kept up with your repayments. See? Flexible.
A line of credit has a spending cap
A spending cap helps to advocate for responsible lending. For example, Drafty, a short term loan alternative limits borrowing to up to £3000, helping you to stay in control of your finances – Representative 96.2% APR (variable).
Interest rates
There are no two ways about it: direct short term loan interest rates can be sky-high. Often, this is due to borrowing more in a lesser amount of time, equalling more risk in the eyes of a lender. Interest rates for a line of credit are often much lower. Take a look at how we compare loans to see for yourself.
Want to find out how a Drafty line of credit can help to boost your cash flow? Check out our ‘About Us’ page.
Disclaimer: We are not providing financial advice, these are just tips for informational purposes. Also, we are not affiliated to any of the external parties, these links are provided for reference only.
