Credit cards are offered by many banks and financial institutions so access to a credit card is now available to most people, even if they have a poor credit history. Most banks supply plastic credit cards, however, several challenger banks offer virtual credit cards that are used only once to help prevent card details being captured and being used for fraud purposes.
Many people think of credit cards as the best way for paying for goods and services and welcome the possibility to use the available credit facilities to pay for their purchases over an extended period, even though there are interest payments to consider. There are other ways to borrow money, however and for some, a credit card may not be the best solution for their borrowing needs.
We look at some credit card alternatives in this article.
If you have a poor credit history
Unfortunately, people who have experienced debt problems and have a poor credit history are frequently prevented from receiving a credit card from mainstream banks and have to resort to short term loans when they need cash to get by.
There are various types of short term loans, such as payday loans which offer access to fast loan payments to tide the borrower over to the end of the month when they receive their monthly pay cheque. Having a poor credit history is often not a barrier when applying for these sorts of loans, however the interest rates can be very high and can rapidly increase month by month if the loan is not quickly paid off.
The high interest rates charged by short term lenders persuades many people to turn to family and friends to loan them money. Whilst this may seem to be a cheap way of borrowing money, it is fraught with problems if the loan cannot be repaid within the agreed time, as it can place considerable strain on family relationships and friendships, with long-lasting consequences. The old saying to not mix business with pleasure is very pertinent in this case.
Emerging forms of lending
By exploiting the capabilities of the internet and mobile technologies, some financial institutions are offering different forms of loans that may provide a better lending alternative to a credit card.
Peer to peer lending is a good example of how the internet can be used to bring a group of people willing to lend money in touch with those who are seeking to borrow money, but who may have been refused loan facilities by their bank.
An excellent example of this is an entrepreneur wanting to finance a start-up business, however the lack of trading history is likely to preclude him from borrowing money from his bank. Peer to peer lending can be an excellent solution in this case as individual lenders are likely to be more willing to take lending risks than a traditional bank, in the expectation of receiving a higher interest rate for the money that they are lending. Although the entrepreneur will be charged higher rates for their loan, they are likely to receive the finance they need to get their new business off the ground.
Credit lines are becoming more popular and are one of the credit card alternatives that are available for people wanting to borrow money. Credit lines provide access to money within agreed credit limits and allow the borrower to transfer money directly into their bank account whenever they need it, as long as the amount does not exceed the credit limit and a monthly minimum repayment is paid.
A lender such as Polar Credit specialises in offering credit lines, which work in a similar way to borrowing from a credit card, in that you only pay the interest on the money that you have actually transferred into your bank account rather than on a total credit limit value. So even if you have been offered a total credit line of, say £1000, but have only transferred £500 into your bank account, you will only pay interest on the £500 and not the total £1000 that is available to you.
Although credit cards suit the purchase and borrowing requirements of most people, they may not be the best solution for some borrowers. Luckily, there are alternatives to credit cards for those seeking to borrow money but who fail to secure loans from high street lenders. As long as interest rates and loan terms are considered carefully, these types of loans may offer a good solution to lending needs.