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What Option To Choose – Payday Loans vs Credit Cards

What Option To Choose - Payday Loans vs Credit Cards

Payday loans vs credit cards are two among the biggest sources of credit acessible to almost all Americans. In many ways, these two products are very similar – but the differences to highlight are important. We’re going to underline what are the pros and cons, and what differences they have.

What is a credit card cash advance?

A credit card is a loan issued that allows you to get instant cash. It’s either withdrawn from an ATM, a bank withdrawal, a check or another method. The cash advance fee is ranging from 2% to 8% with a $10 minimum. With a credit card cash advance, you’re likely charged interest right away. There is alos a grace period during which you may reduce your expenses on interest rates.

What are the pros of a credit card?

  • Interest rates for credit cards are usually higher than for personal loans, but always lower than for payday loans. They usually amount to 20-30% per annum. If the holder is a regular customer or can confirm his reliability, that the bank will reduce the interest when issuing a credit card.
  • The credit card has a grace period during which no interest is accrued. If you manage to pay off the debt during this period, you will be able to use the card without overpayments. You will only need to pay for the service and email notifications. The Bank may extend the grace period upon full debt repayment.
  • The amount on the credit card is renewable. After paying off the debt, it can be used again. This is convenient for those who use borrowed money often – it is easier to issue one credit card than several loans.
  • The size of the credit limit may be greater than the loan amount. It depends on the borrower’s income and is often equal to twice its amount. If you use a credit card often, the bank will be able to increase the available limit.
  • A credit card sets more flexible repayment terms than a loan. It is usually enough to make a minimum payment every month – a part of the debt amount plus accrued interest. In any case, you can repay the entire amount of debt or most of it, including ahead of schedule, without any restrictions.
  • Credit cards often offer bonus programs for their holders. Cashback or bonus points are credited for purchases, which can be spent or withdrawn to the account. Partner banks have discount programs. For cards with a high status (gold, platinum or premium), there are often privilege programs (for example, personal service in a bank or insurance on trips).
  • It is easier to use a credit card abroad. You can pay for expenses in any currency – the money will be exchanged automatically.
  • There are also installment cards – credit cards that allow you to buy goods and services in interest-free installments. Purchases paid for with such a card are repaid in parts within a certain period. The interest is paid by the store where you paid with the card.

What are the cons of a credit card?

  • When applying for a credit card, the borrower should meet fairly strict requirements. This may be a certain age, state of residence, length of service and income, as well as the condition of the credit history. To issue a card, you often need a certificate of income, a work record or a contract.
  • Credit cards have limits on cash withdrawals and transfers. In most cases, when conducting such operations, a high commission is charged and the grace period is terminated. Only a few banks offer credit cards for cash withdrawals.
  • Issuing a credit card can take a long time. Depending on the bank, it may take from 1-2 to 5-7 business days. Some organizations offer instant credit cards, but the functionality of such offers is often limited compared to standard ones.
  • Sometimes a bank may withdraw a credit card if operations are not performed on it for a long time. Therefore, it is more difficult to use it as a reserve payment instrument.
  • You need to contact a bank branch to apply for a credit card. The choice of offers is limited to credit organizations that operate in your state.

What is a payday loan?

With a payday loan, you may cover an upfront fee to issue up to about $100-$1,000. Extra fees are added if you’re not able to pay it back within 2 to 4 weeks. The interest rate can accured quickly. A 2-week payday loan could have a fee of $15 per $100. That fee is equal to an APR of about 400%, much higher than the rate of a typical personal loan or credit card.

Payday loans are allowed in more than 30 states, with several states capping the interest rate on loans.

payday loans legal in states

To get a payday loan, you borrow against an income source such as your paycheck, pension or Social Security. You write a check for the balance of the loan or authorize the lender to access your bank account.

What are the advantages of a payday loan?

  • The terms for issuing a payday loan are more loyal than those of a credit card. Direct lending companies do not impose strict requirements on borrowers, and only an ID is enough to fill in an application and receive extra cash.
  • Online lenders are rarely denied loans to their clients. They are more often used by those borrowers who usually get rejected by banks – for example, housewives, students or the unemployed. Also, many companies are loyal to customers with a bad credit history – payday loans will help you restore credit rating and get more favorable offers.
  • It takes little time to issue a short-term cash advance. It often takes from a few minutes to one working day to review an application and transfer money. Some lending services work in automatic and online mode – this allows you to accept applications around the clock and 7 days a week.
  • Many companies issue cash advance over the Internet. You can get deposited in almost every US state – you only need access to the lending website.
  • Loans are deposited and repaid in various convenient ways. The amount of the small loan can be deposited to a bank card or account, to an e-wallet, by money transfer or in cash. You can repay the debt using a bank card or wallet, by money or bank transfer, through ATMs.
  • You can issue a prolongation (extension) if you do not have time to return it on time. At the same time, you will receive a delay for several days or weeks. To issue an extension, it is enough to send an application and pay the accrued overpayment or, if required by the company, a separate commission.

What are the cons of a payday loan?

  • The first and most obvious is high interest rates. Due to the small amounts and terms, as well as the risk of giving money to an unreliable client, interest on loans is often significantly higher in comparison with credit cards. Some lenders issue loans without interest, but they are available only to new customers.
  • It is not always possible to get a loan for a large amount. A standard payday loan usually has an amount of up to $100-$1,000 and a period of up to 3-4 weeks. If you are contacting the company for the first time, then the amount and term may be even smaller. There are lenders that issue large loans for long periods, but such offers are usually valid only with frequent requests.
  • Online lenders may be less reliable than banks. Among them, there are often scammers who can steal money or personal data of borrowers, or leave customers with very large debts. It is sometimes quite difficult to determine the reliability of a service.

What to choose: payday loans vs credit cards?

It all depends on how often and for what purpose you apply for borrowed funds. A credit card will suit you if:

  • you often need borrowed funds in non-cash form;
  • you use borrowed funds mainly to pay for purchases;
  • you can follow the grace period to use a credit card without interest;
  • you need a backup source of borrowed money for unforeseen situations.

In other situations, a payday loan will be more profitable:

  • if borrowed funds are required rarely and in small quantities;
  • if you need a certain amount for urgent purposes here and now;
  • if you are refused by banks for any reason – for example, because of your bad credit history;
  • if you need cash, it is easier to get it from the lender than to withdraw it from a credit card;
  • if it is difficult to use banking services in your city (for example, due to the small number of branches).

Bad credit history: credit card vs payday loans

How to get a credit card with a bad credit history?

If there are serious violations of financial discipline, they will have to be eliminated. For example, if there was a long delay, you need to repay the debt, pay interest and penalties, and then take responsibility for your obligations and regularly make payments. After 6-8 months, if no new negative facts have appeared, it is recommended to try to take a credit card with a bad credit history: probably, the financial situation of the borrower has changed and it is permissible to deal with him.

If you have a high debt load and a lot of open loans, it makes sense to think about refinancing. This will reduce the cost of servicing loans, as well as improve terms, for example, reduce the interest rate.

If you have not had loans before, you should request a small amount from the bank. This will increase the chance of approval of the application, and with active and conscientious use of the credit card in the future, the bank, as a rule, offers to increase the limit.

When there are other disturbing facts in the credit history, such as changes in living place and phone numbers, it is better to apply for a loan to the branch in person and explain the situation. By eliminating doubts, you will increase your chances of cooperation with the bank.

As you can see, it is quite possible to take a credit card with a bad credit history or with negative reports in it. The main thing is to restore the reputation of a conscientious borrower and take monetary obligations seriously.

A payday loan with a bad credit history – yes or no

When planning to issue a certain amount of money in debt through a payday lender, start by registering in your personal account, enter the necessary data from your ID and mobile phone number into the questionnaire. Submit your application online. A response will be received within a few minutes. In case of a positive result, the requested amount will be deposited to the bank account almost immediately or you will receive it in cash at one of the company’s branches.

New borrowers, even if they have a bad credit history, apply for a cash advance and take it on a general basis. As a nice bonus, no interest or small rate is charged on the first loan approved for new-comers.

If the debt to the online direct lender is repaid on time, the client has the opportunity to receive a large amount.

Comparing table

Payday loans Credit cards
High interest rate Higher interest rates
Smaller amounts Offers ongoing access to specified amount
Doesn’t consider ability to repay Unsecured loans not sured by collateral, secure loans are backed by collateral
Repay with the next paycheck Variable minimum monthly payments
Hidden fees and charges Used for shopping and daily expenses
Not reported to credit bureau Can help build better credit report

Category: Online Loans

Tags: credit card, finance, payday loans, USA

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