Choosing Between a Payday Loan and Credit Card

Choosing Between a Payday Loan and Credit Card

If you need money urgently and there is no one to borrow from, the best solution may be to apply for a credit card or a payday loan. With both options, you won’t have to wait long – typically, the lender makes a decision immediately on the day you apply. You can find a suitable option in a variety of offers from financial institutions. However, first you should still figure out which is better – a payday loan or a credit card.

Pros and cons of credit cards

The benefits are:

  • low interest rate (compared to payday loans);
  • grace period – allows a borrower or insurance customer to delay payment for a short period of time beyond the due date;
  • the limit can be used an unlimited number of times (that is, if you need money again after paying off the debt, you do not need to re-apply, the money can be spent safely);
  • the loan amount can be significant;
  • various loyalty programs (bonuses, cashback, etc.).

However, there are also disadvantages:

  • certain requirements for the borrower (age, state of residence, good credit history, proof of income, etc.);
  • restriction on transfers and cash withdrawals from most banks (a large commission is taken for this);
  • it may take several days to get a personalized credit card. Of course, you can make it unnamed, but its functionality is somewhat limited (for example, it will not be possible to use the service of most online taxis, etc.);
  • the credit card has a limited validity period.

Pros and cons of payday loans

Payday loans from microfinance organizations have the following advantages:

  • requirements for the borrower are relaxed – typically, you only need a government-issued ID;
  • high approval rates (as practice shows, even students, the unemployed, pensioners and people with bad credit history get approved for payday oloans);
  • you don’t have to wait long for a lending decision and funding, usually it takes no more than an hour to get approved and receive the funds;
  • you can apply for a loan online – the borrower’s data is checked automatically and the money is transferred by a special program;
  • funds are typically transferred remotely – to a personal bank account, electronic wallet, etc. (methods vary by lender);
  • loan extension option (for example, if for some reason you cannot repay the loan on time, you can pay only part of it and extend your loan for several days).

However, payday loans also have disadvantages:

  • high interest rate due to the fact that the loan is issued for a short period and the credit history is not checked (that is, microfinance organizations cannot be completely sure of the borrower’s solvency);
  • small amounts are usually available – usually up to $1,000. But some lenders are ready to lend up to $2,500;
  • loan repayment periods are short – usually you can borrow money for up to 31 days.

Credit card vs payday loan: comparison chart

Payday loan Credit card
Funding Fast Slow
Interest rate Higher Lower
Grace period No Yes
24/7 Yes No
Application Easy More difficult
Cash withdrawal Yes Not recommended
Bad credit Yes No
Renewable limit No Yes
Commission No Yes
Bonuses For regular customers Yes

What is still better: a credit card or a payday loan?

Credit cards are more profitable from a financial point of view. They have an interest-free period, and the interest rate will in any case be lower than in a microfinance organization.

However, if you have a poor credit history and need money urgently, you’d better take out a payday loan. It is also more profitable to apply for such a loan if money is needed for a very short period (for example, for a few days or weeks) – in this case, overpayment will be insignificant. To find the best offer, you can use a referral service that partner exclusively with legit lenders and will match you with the right company for your needs:

Category: General

Tags: credit card, finance, money, online loans, payday loans