Payday Loan vs. Credit Cards

Payday loans are often seen as the last resort of people who can’t easily get a loan to pay for their bills and other necessities. You can easily accept the fact that you can go through a debt with high interest rate since you don’t have any choice. Without the payday loan, you might not be able to avail the services they need.

Your only comfort is you could still pay for this type of loan as soon as your next paycheck arrives. But that would mean needing additional finances before their next paycheck comes. Before you know it, payday loans has become a “tradition” because you can’t make ends meet.

If you take a good look at the reason why you go to payday loan companies, you can easily get yourself out of payday loan debt. All you need from payday loan companies is cash to spend on their daily expenses and pay the bills for the services you enjoy. If you need cash and fast, you don’t have to go to a payday loan company just to get one in an hour or two, use your credit card and avail of their cash advance feature.

People are hesitant to use their credit cards for cash advance and go to payday loan companies because they thought that the interest rate of a payday loan company is better compared to their credit cards. Although the interest rate for cash advances is high in credit cards, it’s still smaller compared to payday loan companies.

To fully understand the difference, here’s the usually scenario: the interest rate of a payday loan company is usually at $20 per $100 of loan payable on your next paycheck, which is 15 days or two weeks. That means the interest rate of a payday loan company is at 20%.

If you are able to pay them on time well and good but if you miss one day (they don’t usually accept extensions), 20% is again placed on your outstanding debt which is already at $120. That means at the end of the month you will have to pay them $144 ($120 + 20%) within 30 days, your interest rate is at 44%. Granted that you are able to pay them on time, there are additional fees that you have to pay every month such as processing or approval fees.

On the other hand credit cards will give you cash in an instant with a lower interest rate. The highest interest rate of a credit card on cash advances for those who are in very bad credit standing is at 29% - and that is already the maximum interest rate for cash advances. 20% every 15 days for payday loan companies is just the average which means it could even go higher than 20% in only one payday.

Another advantage of credit card to any payday loan company is the legal issues that you have to face in case you can’t pay them on time. Payday loan companies are allowed by law to file criminal charges in case you can’t pay them on time. On the other hand, credit card companies cannot file charges against you in case you can’t pay them on time. They will instead contact you and offer payment options so that you can pay them in your own easy terms that are also acceptable for them.

Before you visit any payday loan offices, be sure to check your credit card first if you can use it as a cash advance. If you don’t have any credit card, applying for a credit card is very easy even though you have a bad credit standing. Although the interest rate is higher, it’s still lower than the interest rate of payday loans.