Personal Loans

Personal Revolving Credit Facilities in the UK – What are Your Choices?

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You might have heard the term “revolving credit facility” but what does it actually mean? In this article, the Oyster Loan team looks at the three main types of revolving credit facility in the UK, as well as their advantages and disadvantages.

Credit cards are revolving credit facilities

Did you know that there are 3 credit cards for every man, woman, and child in the UK? It’s a massive market and competition is intense between the different providers.

How do they work? For each credit card you have, you’ll have a set credit limit. You can spend as much as you like on your card just as long as the total balance does not go over your limit.

You then make a payment once every month to your credit card company. You can either pay your credit card balance off in full, make a minimum repayment, or choose an exact amount you want to pay.

Overdrafts are revolving credit facilities

Overdrafts are only offered to customers with a current account. As with a credit card, an overdraft has a limit. You don’t need to contact your bank when you want to buy something as long as it does not take you past your agreed limit.

Because you don’t have to pay an overdraft back in full within an agreed time limit, many people find that they eventually start living in their overdraft. When they are paid, either what they get paid just takes them back into the black or they stay in the red. Did you know that over 2million Brits are trapped in their overdraft in this way?

If you spend past your limit, you go into something called an “unauthorised overdraft”. If you find yourself in that situation, you end up paying far more to service an unauthorised overdraft than you would pay off a payday loan or bad credit loan, according to the BBC.

Revolving credit facilities like a cross between a credit card and an overdraft

There are only a couple of companies offering revolving credit facilities to consumers in the UK. Revolving credit has been an important type of finance for business for the last few decades and, in the last few years, the facility has started to appear for consumers.

Just like a bank overdraft, you have a limit and you can spend right up to that limit. Just like a credit card, you make a monthly repayment to a revolving credit provider. That payment is a combination of the amount of money you’ve borrowed and the interest on that amount.

You only pay for the credit you’ve actually used – if your revolving credit facility has a zero balance, you don’t pay a thing for the service.

What are the downsides of revolving credit?

Mainly, credit cards, overdrafts, and revolving credit facilities are useful financial tools for any consumer here in the UK. But there is one major drawback – there’s no end date set out in advance when your debt disappears.

With a credit card, it can take decades to pay down a balance if you only make the minimum monthly repayment. We’ve seen how bank overdrafts can slowly lull people in meaning that they need their overdraft just to survive. Remember that bank overdrafts can be withdrawn at any time and if you find yourself living in your overdraft, having it withdrawn will have a significant and long-lasting negative impact on your quality of life.

Should you choose a loan instead of revolving credit?

With a loan, you’ll be given a set end date – unlike with credit cards, overdrafts, and revolving credit facilities. If you decide that you need to borrow an amount of money to cover an emergency bill, once you’ve paid your loan off, you don’t have to worry about it anymore. In that way, it’s very different from credit cards, overdrafts, and revolving credit facilities.

If you need to borrow money and you want a definite date on which you’ll have paid the whole thing off, a loan provides that certainty unlike a credit card, overdraft, and revolving credit facility.

Oyster Loan works with a wide range of loan providers in the UK – including bad credit loan providers. We’re not a lender – we’re a Financial Conduct Authority-authorised broker. What we do is match borrowers like you to lenders who want to help you with a brand new loan.

How do we do that? First, you enter your details into our easy-to-complete application form. Some of the questions we’ll ask you are who you work for, how much you earn, what you spend money on every month and your address history for the last three years.

When we and the partner lenders have your details, we pair you with the lenders on our panel whose “borrower profile” (that’s an industry term describing a loan company’s ideal customer) you’re the closest to. Those lenders will then send us back a decision in principle – they’ll tell us the type of offer they’re likely to make to you.

After that, we’ll request your credit report. We will send that to all the lenders who are interested in lending to you.

Then, we will show you all the final offers we’ve found for you with details like the total amount of interest you’ll pay back, how much your monthly repayments will be (and when you have to make them), and information on other charges and fees.

This all happens on a real-time basis. You’re free to choose the offer that suits you best – and you’re free to turn them all down. With Oyster Loan, you’re always in charge and you never pay us a fee. If you decide to take out the loan, read the terms and conditions before accepting and be sure in yourself that you can meet all repayments in time and in full. If you’re happy, accept the loan and, at that point, a direct relationship will exist between you and your lender. You do not have to pay anything for using Oyster Loan as your broker.

To start your Personal Loan application with Oyster Loan, Click Here.


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