You may have read the title and thought there was a clear winner. However, after reviewing the advantages and disadvantages to both, some borrowers may in fact find that payday loans are a better alternative for them.
Below, we’ve taking the time to help you understand the difference between a credit card vs. payday loan. In the end, we hope you walk away with a fair comparison of the pros and cons to each lending option.
How it Works
Credit cards are issued by a bank or lending institution crediting borrowers with a set amount ranging from a few hundred to several thousand that they may use for purchases. Borrowers are billed monthly for the amount they’ve spent plus interest and fees.
To qualify, you must pass a credit check and income verification process. Much like with cash loans, the higher your score, the lower interest rates you may be eligible to obtain.
Credit card lenders typically discourage borrowers from withdrawing cash from their cards by charging higher interest rates on these types of transactions than they do on purchases. Some credit cards restrict cash withdrawals altogether, so if you think you’ll need cash when you’re in a hole, this may not be the best route for you.
Interest, Fees, and Payments
The fees on credit cards are determined by the lending institutions, so they may vary according your credit file and change over time according to conditions within your contract. Card holders on average are charged anywhere between 14% to 30% interest on their purchases. As stated earlier, the interest rate to withdraw cash is typically higher than the interest rate charged to make purchases. If you withdraw $100 at a 24% interest rate, you could be charged $24 on that withdrawal, plus any additional fees that may accrue each month until the debt is repaid in full.
With credit cards, you may make a minimum monthly payment if you need more time to repay, but if you only make the minimum payment, you’ll end up accruing a daily interest on the amount borrowed until you pay off the account balance in full.
How it Works
A payday loan or cash advance is a short term cash loan between $50 and $500. The loan amount varies by state, but the term of the loan is usually synchronized with the borrowers’ next payday (typically a 10 to 30 day term).
To obtain a payday loan, there is no credit check, however the borrower must meet certain loan requirements and present the lender with proof of identity, proof of income, proof of residence, and a bank account is normally required for these loans. Learn more about how to get a payday loan here.
Payday loan recipients are presented with a cash loan for the amount they’ve been approved for on the spot. This saves borrowers from accruing check cashing fees if they were presented with a loan check or having to wait for a deposit to clear their bank if funds were distributed through that route.
Interest, Fees, and Payments
The payday loan is required to be paid in full plus a small fee on your next payday. The loan may be rewritten if the borrower needs more time to repay by paying at least the interest fee of the loan on the payment due date. In Alabama, borrowers are charged a $17.50 fee for every $100 borrowed. So if you borrow $100, you will owe $117.50 on that loan. The fees on payday loans are state regulated.
So if you plan to get a payday loan, do not borrow more than you are able to pay back on your next payday. Payday loans are designed for short term solutions and in case of emergency situations. It’s quick, easy, and confidential.
Based on the information above, we hope you are able to decide which is a better for your unique financial situation: a payday loan or credit card. You be the judge.
Getting a handle on your money takes time, and Always Money understands. If you’re in a jam and need immediate help, any of Always Money’s small personal loan options may be just what you need to get you going in the right direction.
For over 20 years, Always Money Finance has been a regional leader in providing affordable credit solutions to customers across the southeast looking for a convenient and confidential way to meet their needs.
To get started,
- Visit a store near you (Click here to find the store nearest you),
- Call 1-888-618-9217 to get pre-approved over the phone, or