Drafty: a credit line
- Credit of £50 to £3,000
- Flexible repayments
Drafty is owned by the same company that brought you Lending Stream, the short term loan product you’ll have seen advertised. It positions itself as the fresh alternative to the old-fashioned payday loan. It’s a pre-approved line of credit you dip into when you need to cover short term, unexpected costs.
|Credit Amount (£)||Crredit Term (months)||Representative APR|
|50 – 3,000||As required||89.7%|
This line of credit works the same way as revolving credit. You apply for a specific amount of credit but you are only charged interest on the actual credit you use on a daily basis. The interest charged is 18p per day per £100. So, borrowing £100 for 30 days will cost £5.40. Your minimum monthly repayment is this interest plus 6% of the money you have borrowed subject to a minimum overall monthly payment of £50.
Drafty scores 4.4 out of 5 based on over 9,000 reviews on Trustpilot as of May 2021.
How a Line of Credit Works
A line of credit is a pre-approved pot of money you can access if you need to and you only pay interest on the amount you use for as long as you use it. This means it is different to a loan where you are given the full amount and pay interest on it all immediately. When you call on your line of credit for a specific amount Drafty will immediately move it to your bank account. So long as your account is in good standing you may access your Drafty account whenever you wish.
A line of credit is best thought of as an emergency fund, something that you set up and only use to meet unexpected costs that you then repay as quickly as you can. You should not use it to meet ongoing shortfalls in your income as this is a relatively expensive form of credit.
Drafty’s Representative Example
Borrow £1,200 for 12 months. Representative 89.7% APR at 65.7% p.a. (fixed). Repaid in equal instalments. Interest payable £401.40. Total repayable £1,601.40.
The Pros & Cons of a Credit Line
As an easily accessible form of credit when you need it a line of credit has particular advantages and disadvantages to alternatives such as bank overdrafts, payday loans and credit cards.
- Flexible access to cash when you need it.
- Interest is only paid on the amount you actually use, not the full value of the credit line.
- More competitive rate than offered by many short term loans.
- There are likely to be cheaper options if you want to borrow for more than a few months.
- A credit card, another form of revolving credit, can give you up to 45 days of interest-free credit if you pay the full balance off before the due date.
- Unlike a credit card, you don’t have section 75 Consumer Credit Act purchase protection.
- Drafty cannot be used directly to make purchases. You must first transfer funds to your bank account.
- Avoid only repaying the minimum monthly amount.
Drafty uses “open banking” to help them assess your credit application. In exchange for you giving permission to their application system to view your bank records (to enable an affordability assessment) they can provide a fast and accurate lending decision. Find out more about open banking.
Drafty is a trading name of GAIN Credit LLC. Registered Address: 251 Little Falls Drive, Wilmington, DE 19808, USA. Registered in the State of Delaware, USA. Registration Number: 4124111. UK establishment office address is Wisteria Grange Barn Pikes End, Pinner, HA5 2EX. Company number FC032134.
GAIN Credit LLC is authorised and regulated by the Financial Conduct Authority with firm reference number 689378.
ICO Data Protection Registration
GAIN Credit LLC is registered with Information Commissioner, registration number Z2752028.
Instalment Loans Guide
If you’re uncertain which type of credit might suit you or you have a money problem then one of guides may help you. We summarise each type of loan and their pros and cons, and address issues regarding debt and credit ratings.
Got a Question about Drafty or Lines of Credit?
Answer to Common Questions
A line of credit is a flexible way to access cash. It is a pre-approved borrowing limit that you access when you wish – once you have been approved for that limit you do not have to seek further approval before drawing money from Drafty so long as your account is in good standing. The pre-approved limit will be set by the lender based on not only your needs but your personal circumstances and your creditworthiness. Unlike a loan, you only pay interest on the amount you actually withdraw for as long as you are using it. Lines of credit should be considered for emergency use only – i.e. to meet an unexpected expense (not in your budget) and should be repaid as quickly as possible to avoid undue interest payments. Unlike a loan, a line of credit has no specific end date. You could have it for years and yet never use it.
Drafty provides a line of credit and not a loan. When you are approved by Drafty they set aside a sum of money for you to draw upon as required. So, for instance, if you have a £1000 line of credit you can leave it untouched until you need it for something unexpected. At that point, you could request £100 and this is immediately transferred to your bank account without any further approval required. From that moment you pay interest on the £100 at a rate of 18p per day. To minimise interest charges you should always repay what you’ve drawn as quickly as possible. If you use this form of credit sensibly you should find it a cheaper alternative to a payday loan or short term loan.
The costs of using a Drafty credit line are as follows:
- interest of 18p per day per £100 of actual borrowing (not the upper credit limit)
- there are no fees for transferring funds to your bank
- there are no fees if you may late repayments (although continual late payments could affect your credit score)
Your repayment behaviour (good and bad) is reported to the credit reference agencies.
When you have drawn money from your line of credit then your minimum monthly repayment is the higher of:
- the interest charged plus 6% of the amount borrowed.
- £50 (unless your outstanding balance and interest are less than £50 in total).
Normally you will agree to set up a continuous payment authority (CPA) with Drafty. This way the minimum monthly payment will be taken automatically as long as there is money in your bank account. However, to minimise interest costs, you should always try to repay the amount you’ve borrowed more quickly. So you will need to use the Drafty app or log in to your account online to pay more than the minimum amount.
Both a line of credit and a payday loan are forms of emergency credit. As with any loan a payday loan has a specific repayment date whereas a line of credit is a form of revolving credit and the balance can be carried over into the next month. These days payday loans are no longer 30-day loans and have morphed into multi-month short term loans. It is probable that if you use your line of credit sensibly and repay the balance in full as soon as you are able that the overall cost will be less than with a payday loan.
Both lines of credit and credit cards are forms of revolving credit – in other words, the credit continues month after month while you use it and then make monthly payments to settle all or part of it. Both lines of credit and credit cards have credit limits within which you have to work. So, the key differences are:
- a credit card does not charge interest immediately. So, if you always repay the outstanding amount at the last moment you could get on average 45 days of credit interest-free. With a line of credit, you incur interest the moment you borrow from it.
- a credit card confers purchase protection thanks to section 75 of the UK’s Consumer Credit Act.
- credit cards often come with some additional perks such as cashback or some form of reward points.
At first sight, a line of credit and a bank overdraft look very similar. In fact, both are forms of revolving credit. However, Drafty is at pains to say that their line of credit is not like an overdraft and not only because an overdraft is directly linked to a person’s bank account.
The use of Drafty’s line of credit requires you to actively move funds to your bank account. In the case of an overdraft, there is no need to move funds as your bank treats your overdraft as a simple extension to your bank account.
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