Have you ever been faced with a tough decision to make, for instance, between two lending options? Borrowers are expected to be rational, and this means their borrowing decisions will be motivated by financial prudence. When you want to borrow money online instantly, there are so many factors that you will have to consider. This is because you are dealing with people you may never meet your entire life. You are trusting them with your personal information, and that can be risky. But when it comes to the issue of financial prudence, you have to be careful with all types of borrowing, whether online or from traditional lenders such as banks and credit unions.
Why deciding a borrowing option quite challenging? For several reasons. For instance, before sending an application, you need to be sure that you will be approved for the loan. A declined application may have devastating impacts on your credit. Still, you need to ensure that you will receive enough to cover your needs. You have to ensure that you will be in a position to keep up with payments and that you will be happy dealing with a lender. Lending types might appear quite similar sometimes, and it is imperative to assess the differences between them. For instance, how do you choose between payday loans and credit cards? Your decision has to be based on rationality and financial prudence. Aim at the option that will result in maximum benefits.
Well, in this blog, we are going to consider the question – why would someone use a payday loan instead of a credit card. Let us begin with a brief overview of each one of them.
- Payday Loans
These are cash advances that often range between a hundred dollars and a thousand. Since borrowers are not subjected to credit checks, even with bad credit, you can still be considered. All you need is proof of income and an account. Payday loans are supposed to be repaid in just one installment, primarily through borrowers’ checking account on the payment day. This is a little bit beneficial since there are no chances of forgetting to pay, and the loan will be paid back once.
Seems too good? Well, there is a price to be paid. The interest rates on payday loans are quite high, and this makes them quite expensive. Before considering taking a payday loan, you have to be sure that you will have enough funds to repay the loan and still cover all your monthly expenses. You are required to repay the loans once. In case you do not have enough money to repay, there is a penalty that applies. Most individuals feel a huge deficit once the loan is paid back, and this compels them to reapply again. This way, they find themselves in what we call the vicious cycle of payday loans.
One of the most outstanding features of payday loans is that they are often processed very fast. Some lenders can even get you the needed funds within hours of applying. That is why they are considered as the best emergency loans by many, though this assertion is subjective. For more details about payday loan, you may check out online lenders to give you several options.
Since individuals with bad credit can be approved, these loans are expensive compared to others. This is attributed to the fact that the lender bears a lot of risks in lending to high-risk borrowers. But since they are expected to be paid back quickly, they may not be so stressful unless the borrower gets into the circle of borrowing.
- Credit Cards
Credit cards are often used for purchasing goods. It is not a must for them to be repaid before the bill comes. Still, there are some options upon the arrival of the bill. You will be required to repay the minimum balance that provides for the interest and additional charges. Nevertheless, if you go by this option, you will be required to pay interest on the outstanding balance. There is also an option of paying the outstanding amount in full and avoid any charge.
Unlike payday loans, you will be required to have good credit to have a credit card. Also, after applying, it might take quite some time before you receive the card. You will also be required to wait for the pin. There are cases when individuals are declined and have to try elsewhere.
It can be quite expensive, especially if you choose to pay the minimum balance. This is because you will be required to pay additional interest and can rather be challenging to establish the amount of interest you are actually paying. You have to pay interest monthly, and therefore it is possible actually to forget the much you are paying.
Why Payday Loans
So why should an individual choose payday loans instead of credit cards? In light of the above, the payday loan appears to have an edge against credit card. The following points summarize the reasons why payday loans might be preferable.
Credit
Payday loans are ideal for individuals who need to borrow money online instantly but have issues with credit. Having bad credit means you cannot have a credit card. So when the choice has to be made between the two, a payday loan is the best way to go.
Urgent need for cash
During emergencies, individuals need instant money. Credit cards might not be acceptable in several conditions, such as rent, private landlords may only want some money or cheque. Well, even if an individual has a credit card, it is not easy to get credit advance. Payday loans are always processed within hours, and therefore individuals can access the funds they need fast.
Credit card debt is very costly
For individuals not having excellent credit, the average interest might range between 20% and 22%. We earlier stated that the interest rates on payday loans are quite high. Nonetheless, the loans are meant to be paid off within a short time. Since they are not supposed to be used for the long term, interest issues should be nothing of a big deal.
Payday loans save time
As we stated earlier, processing a credit card requires time. Even after receiving the card, you may still have to wait for a pin. There are no such issues in payday loans.
The Bottom Line
It is not easy to decide between lending types that appear quite similar. However, with financial prudence and rationality in mind, you can do that. Payday loans and credit cards have both advantages and disadvantages. Nevertheless, payday loan appears to have an edge against a credit card, and that is why individuals would prefer them.
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