It is the end of the month, you are low on cash, and there are too many expenses to be paid off. You might wonder if there is any way you can overcome this tough situation. One of the most common ways to resolve this issue is to take a loan. However, how should you go about this process, and which way is better?
Payday loans and credit cards are two of the most common ways for people to borrow a loan. These methods differ from each other significantly and have their own pros and cons. While payday loans do come with some pros, we believe that swiping a credit card tends to be the better option. How so? Let us break it down for you.
When it comes to payday loans, the average fee you will be paying for each loan will fall anywhere between $17 to $25. Credit Cards, on the other hand, tend to have a smaller average fee, and we will explore that later on in this article.
Ease of Use
As for Ease of Use, Credit Cards tend to be the more convenient option as most retailers and merchants do accept credit cards. In fact, there are barely any kinds of transactions that cannot be conducted through a credit card
A revolving line of credit is another thing credit cards have to offer. As opposed to payday loans, credit cards allow you to continue taking up more loans as long as you keep your balance below the credit line. This eliminates the need to apply for a new loan every time you need to take some money.
If your cash flow is tight, credit cards can allow some more flexibility. If you have to borrow a large amount of money, credit cards allow you to return it back in the form of more accessible installments and hence ease up the process for you. For a loan of $1000, for example, the monthly installment might come down to as low as $30 per month.
Credit Cards also happen to offer much lower interest rates and fees. Most credit cards offer a total borrowing cost of anywhere from 12% to 24%. Several factors pertaining to your credit card history will determine what exact rate you will get. This is relatively a much lower annual rate than what payday loans have to offer. Payday loans offer annual rates that come to an average of 400%, and can even reach up to a staggering 4000% in some cases.
Another significant advantage of using a credit card over payday loans is the standardized and official process of borrowing money, over the process that you have to go with payday lenders. Although many payday lenders nowadays allow customers to apply online without any hassle, many of them still require you to go to a specific physical location. In fact, the payday lending industry has been extensively aggressive, violent, and notorious for tactics it can use to collect money back if the borrower ends up being late on their payments.