There are situations when you feel great demand in money, but there is no one to borrow it from. In this case, you can choose one of the available options – use the services of payday lenders or apply for a credit card. These two products have their pros and cons, after studying and analyzing what is still better – credit card vs payday loan.
What is a payday loan?
A payday loan is a small short—term credit issued by payday lending services. They are able to issue $100-$1,000, some of thme approve $5,000. The interest rate can reach 1%-2% daily and 365%-710% per annum.
See how payday loans work here.
The disadvantageous features of such a lending product are usually a small amount, a short term, high interest rates and ease of application: most often it is issued online, and only an ID is necessary. Sometimes the second document may be required.
What are the types of payday loans?
Payday loans can be divided into several types by:
- term: long or short-term;
- amount: large (installment loans) and small amounts;
- security: without collateral and on bail (for example, a car/title);
- the method of issue: in cash, to a card or an electronic wallet;
- the borrower status: individuals and entrepreneurs;
- the rate: interest-free and at a rate above 0% per annum;
- the place of issue: in the offline or online.
Advantages of payday loans
- It is easy to get a small loan. In the vast majority of cases, only an ID and reaching the age of majority play a significant role in approving cash advance.
- Loan forms are approved much more often than credit card applications. Direct lending services are often approached by those who are rejected by banks – from the unemployed and housewives to students. Even a bad credit history will not be a big problem — moreover, such services often offer to improve their credit rating with the help of special programs.
- You can get a loan very quickly. Most recently, it took one working day, now the deadlines have been reduced to a few minutes. Applications are often processed automatically — 24 hours a day and 365 days a year.
- A small loan can be issued online, being in any state of the country even where there are no bank branches or payday stores. It is enough to have access to the Internet.
- You can get a loan and repay it using several convenient ways. Money can be transferred to a card or bank account, to the e-wallet, in the form of a money transfer or in cash. To repay the loan, you can make a transfer from a card or an electronic wallet, a money or bank transfer, deposit funds into one of the ATMs.
- In many cases, extension is available if it is not possible to return the money on time. Deferral may even mean suspension of interest accrual. A special application is usually filled in and submitted to apply for an extension, lenders can also charge a special commission for this action.
What is a credit card?
Credit cards, when used correctly, are a convenient financial instrument. They allow you to pay for purchases in stores and online around the world, have a grace period of up to 3-4 months, during which you do not pay interest to the bank. Unlike personal loan, the card does not need to be constantly “opened” again. Just pay off the grace period debt and use the card to pay for new purchases — the amount of available limit is replenished automatically.
When issued, the card has a non-zero balance. The money available for spending is the loan that the bank provided to you. You can spend them to pay for goods and services, including communication costs, utilities, restaurant orders and tuition fees.
A credit card works in the following way:
- you pay for the purchase within the available limit;
- until the end of the grace period, interest for using the loan is not accrued;
- if you fully repay the debt before the end of the reporting period, then the full limit will be available to you in the new one;
- in case of partial spending and repayment, the credit limit is reduced by the amount owed;
- if the limit is fully spent, there will be no available funds in the new reporting period.
Unlike a debit card, a credit card requires not only an ID, but also proof of permanent income. It’s easy to find out if you can get a credit card at the moment. Some banks offer online credit card processing. Submit an application and get a preliminary decision in a couple of minutes.
Credit card vs payday loan – what option is more affordable?
People taking out payday loans can be justified. They are not oriented on collecting certificates at every need, even in a small amount of money, look for guarantors, carry documents to the bank, wait for a decision to get a personal loan. But why not open a credit card? Nowadays, it can also be issued quickly, simply, without certificates and at a much lower rate.
What are the advantages of a credit card over a payday loan?
#1. Lower interest rate
The rate on credit cards is higher than on personal loans. But in any case, less than for payday loans. But there are cases when a person issues a payday loan online at rates more affordable in comparison with credit cards.
#2. Availability of a grace period
It is possible not to pay interest at all if you manage to pay off the debt during the grace period. More often it only applies to non-cash transactions, but there are exceptions.
#3. The ability to use borrowed funds many times
Now all credit cards are revolving, i.e., having returned part of the debt, you will be able to use them again. This is much more convenient than going to a payday lender every time and wondering if they will approve it?
#4. Instant solution
But what if you need money urgently? Also not a problem. Now there are instant credit cards, which, like a short-term loan, can be obtained immediately. Moreover, many of them are issued only by an ID.
#5. The possibility of online application
Here these two options are equal, since you can apply for both products (both for a credit card and for a payday loan) online. Moreover, in both cases, an employee of the organization can deliver money or a card right to your door.
There is another nuance here – there are not so many banks offering loans online yet, more practice is to issue loans in offices. And courier delivery can be ordered only in a limited list of cities.
As for payday loans, the situation is different. Firstly, there is more choice. Many lenders deposit extra cash to the bank account directly. Moreover, you can apply to several lenders at once and then choose the most suitable option.
#6. Convenience of repayment
Not a limited number of options are often offered to repay short-term loans.
There are no more optionss of replenishing a credit card from any bank: payment through a cash register, transfer from card to card, deposit via an ATM or terminal, non-cash transfer from any other financial institution, transfer from an electronic wallet, transfer using a mobile phone, and many others as the same offered by payday lenders.
#7. Loyalty programs
Banks offer all kinds of bonuses to credit card users: bonuses, gifts, cash back and much more, you can also earn money on the card.
We build the table for you to see what option to choose: payday loans vs credit cards.
|Indicator||Credit cards||Payday loans|
|Fast approval (less than 24h.)||–||+|
|Quick borrower’s review||–||+|
|Big sum approved||+||–|
|Loan term up to 2 years||+||–|
|Lack of extra fees||–||+|
|The use of borrowed funds||–||+|
Bad credit: credit cards vs payday loans
A credit history is a report on a borrower displaying how he takes, maintains and repays debts. This is a characteristic designed to demonstrate the degree of conscientiousness of a person in his communication with creditors. On its basis, banks decide to issue a new loan, and its poor quality is the main reason for refusals. But not only banks are interested in credit history.
A bad credit history indicates past delays, creates difficulties in signing new loan agreements, and sometimes makes it simply impossible to issue a new loan. If you have a bad credit history, most likely you did not pay past loan obligations on time, or did not pay them at all. When you have a spoiled credit history, lenders are afraid to cooperate with you. They are afraid that you will make payments with a delay. Thus, your loan applications may be rejected. If you are approved for a loan, you will probably have to pay a higher interest rate than borrowers who have a good credit history. A spoiled history can also prevent you from becoming a guarantor for a loan.
Where to get money with a bad credit history urgently?
Banks are likely to refuse a loan to a card with a bad credit history. But you can always use the services of a payday lender. Such companies provide loans on more loyal terms, and most often there is a loan processing in an online and automatic mode.
What is the difference between the online payday lender and banks?
- You can take out a loan online with a bad credit history, without official employment or high wages.
- The interest on the new loan is higher than in the bank, due to which the dubious “reputation” of the borrower is covered.
- The main requirements are the ID, a bank card, to which the loan will be credited, as well as a phone number and e-mail.
- The money is given to both students and pensioners or the unemployed.
- To get a loan without refusal with a bad credit history, you need to choose a company that offers suitable terms for you (loan amount, period and interest rate), and take out a loan on the website.
Is it possible to issue a credit card with a bad credit history?
If you have been delayed in loan payments, then you may have a bad credit history. Most likely, you will receive a refusal from the bank to issue a new loan to a card with a bad credit history. But even if you already know that you have a bad credit history or have already been refused by one of the banks, you still have a chance to get a credit card. The most important factor here is the choice of the right bank or institution providing loans. And, of course, your perseverance plays the significant role. The basic rule is that you should choose an institution that is very loyal to its potential customers and will not make too high demands on you.
The choice between a payday loan vs a credit card greatly depends on the goals and specific circumstances in which the borrower finds himself. It is advisable to use a payday cash advance if the money is needed very urgently, here and now, but not a very large amount. Otherwise, you will have to pay much more interest than if you use a credit card. It is also important to take into account that late payment on such a loan entails severe penalties.
It is recommended to issue a credit card to those customers who plan to regularly pay for purchases and withdraw funds. A lower interest rate is set for it, and it is also possible to receive cashback.
Credit cards are more suitable in such cases:
- Borrowed money is required periodically, and the non-cash formr is quite satisfied for the borrower.
- With the help of borrowed funds, the usual daily purchases in the store or on the Internet are covered.
- The borrower knows how to use the grace period in order not to pay interest for using the bank’s money.
- A person needs a convenient means to pay for purchases abroad or in one of the foreign online stores.
- The card will become a backup source of borrowed funds in case of an unforeseen situation.