Is a Drafty loan safe? Here's what you should know

If you put a credit card company, a payday lender, and a buy now, pay later company in a blender, what would you get? It might be something like Drafty. 

Drafty is a direct lender for personal loans, lines of credit, and more. They’re billed as an alternative to credit cards, payday loans, or overdrafts, although their offerings broadly resemble those products. However, they use affordability checks like what you might see from Klarna or Clearpay, rather than the in-depth and time-consuming applications that you have to go through for traditional personal loans, allowing them to rapidly approve applicants.

Drafty’s popularity has increased significantly in the past three years, leaving many consumers wondering if the latest popular finance product is safe. As with any financial product, there’s no single yes-or-no answer. To understand the advantages and risks of Drafty, let’s take a closer look at their two main products, loans and lines of credit.

Drafty Loans

With Drafty Loans, you can request a loan for between £1,000 and £3,000. Depending on factors like your income, credit score, and debt, your interest rate will range from 69.9% to 99.9%.

If you’re approved, you’ll get your money quite quickly. Then, you’ll need to repay your loan — the details and terms for which you would find in your account. It’s important to note that the longer you take to pay off your loan, the more it will cost you, as the high interest rates accrue a balance quickly.

Drafty Line of Credit

With Drafty’s line of credit, you can borrow up to £3,000 depending on your affordability, which is based on your credit score, income, and other eligibility criteria. This is a revolving line of credit, meaning that you can use it repeatedly, assuming you are making payments and not at your credit limit. The Drafty line of credit’s representative APR is 96.2%.

When you use your Drafty line of credit, you only pay interest on what you use — not the entire credit limit. Keep in mind that while this means you’ll typically have a lower monthly payment, it also means that your debt can add interest quickly.

Advantages and drawbacks of Drafty

Before you consider using Drafty, you’d be wise to consider the pros and cons of using their service. Let’s take a look at some of those here.

Advantages of Drafty

Drafty has some benefits that will attract users:

• No fees: Drafty doesn’t charge any fees on their credit line product, and their loan product only charges late fees. However, even their late fees are capped to £12 over the duration of your loan.
• Fast approval and access: Drafty’s approval and funding process is rapid. They claim they will send money within 90 seconds if you’re approved to borrow.
• No hard search until you borrow: Drafty simply uses a soft credit check to validate your eligibility, so you can apply without damaging your credit score. They will perform a hard search after releasing funds to you, but this exposes you to less risk than applying for a traditional form of credit.

Drawbacks of Drafty

While Drafty has some advantages, it doesn’t come without significant risks.

• Interest rates: Drafty’s products have extremely high interest rates, with loans ranging from 69.9% to 99.9% APR, and their line of credit having a representative APR of 96.2%. By comparison, the average credit card’s interest rate is about 35%, and the average personal loan interest rate can range from 7% to 12%. 
• Debt risk: Due to the Drafty’s nature as a revolving line of credit with a high interest rate, you can rack up debt quickly. If you have a balance of £500, you’d accrue £40.08 in interest with the representative APR. While £40 might not be a lot at one time, it’s an incredibly expensive way to borrow money.
• Eligibility: From an eligibility standpoint, Drafty is not significantly different from traditional forms of borrowing. Most of the same eligibility criteria apply, including residency, employment, and income requirements.

Is Drafty Loan Regulated?

Drafty is regulated by the Financial Conduct Authority (FCA), which provides oversight of the company’s lending practices. Additionally, Drafty carries out affordability checks, like buy now, pay later providers do, to prevent people from using their service when it would be an obvious detriment to their financial health.

However, keep in mind that while Drafty is safe in terms of regulation, it may be risky due to the high interest rates users will face. Without proper management, this could lead you to build significant debt over a very short period of time. To reiterate, just because Drafty is  recognised and regulated by UK financial authorities doesn’t mean it is the right choice for everyone.

FAQs about Drafty Loan

Is a Drafty Loan better than a payday loan?

Drafty positions itself as an alternative to a payday loan and claims it’s “a lot cheaper” than payday loans. And it is cheaper than most payday loans, but that’s a low bar to clear. The median interest rate for payday loans is about 1,300%, which is astonishingly high. With its APR for loans ranging from 69.9% to 99.9%, and its representative APR for credit lines sitting at 96.2%, Drafty is in fact a lot cheaper than payday loans. However, it’s still vastly more expensive than traditional borrowing methods like personal loans or credit cards.

Does Drafty Loan impact your credit score?

Applying for a Drafty Loan could impact your credit score for a short period due to the initial hard credit check the lender runs. However, assuming you don’t add any negative marks to your credit file, your score should recover from that check in months.

Drafty can also impact your credit score if you don’t manage repayments well. In this event, your missed payments will be reported to credit reference agencies, damaging your score. Late payments should be avoided at all costs. Not only will they damage your credit score, you’ll be accruing a significant amount of interest due to Drafty’s high interest rate.

Alternatives to Drafty

While Drafty may seem like a simple solution if you’re struggling to access credit, it’s not the only option available in the UK for lending, even if you have poor credit. You might want to consider other options, including:

• Traditional fixed loans: These may be a bit more challenging to qualify for, but they offer fixed costs and clear repayment terms. With much more reasonable interest rates, they are much more affordable in the long term.
• Credit cards: Even credit cards with high interest rates will be a more sustainable form of borrowing than Drafty.
• **Credit builder loans: **Credit builder loans require you to make monthly payments into an account. Unlike with a regular loan, you must complete the payments before the loan is released to you. Credit builder loans can help you boost your credit score by improving your payment history — the most important factor influencing your credit score.
• Credit builder cards: Credit builder cards work the same way as credit builder loans, but with a card. They’re essentially prepaid credit cards with the added bonus that your payments can boost your credit score.

Before you make any decision about borrowing through Drafty, carefully consider these alternatives and others. Look at the cost of borrowing, their security, and the overall risk of falling into serious debt.

The Bottom Line: Proceed with Caution

Before getting a Drafty Loan, make sure you understand what you’re getting into. While Drafty is a legitimate lender, the cost of borrowing you face may not be worth it. Consider how you’ll effectively pay back your Drafty Loan or line of credit, and how failing to do so will impact your credit score.

Remember, what’s financially best for some people may not be the best decision for you. If you’re struggling to get by, get back to the basics before signing up for anything that could potentially leave you in a worse position than you started in.

To learn more about protecting your credit score, check out our additional resources on building credit and protecting your financial health.