Payday Loans vs Credit Cards.

Payday Loans vs Credit Cards

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Q. Which is better?
Credit card cash advances or Payday loans?

When faced with a financial emergency, two options people usually have available to them are to take out a payday loan (or cash advance loan) or use a cash advance from one of their credit cards. But which is the better option, or does it depend on the situation?

The largest factor influencing the use of credit cards and payday loans are the interest rates that are applied to them.

In general, unsecured loans of any type (including payday loans, online personal loans, payday advances and so forth) come with much higher interest rates than those of secured loans or cash advances on credit cards. This is because the lender for an unsecured loan assumes a much higher risk of not being repaid.

A credit card is an ongoing line of credit used to make purchases of any amount up to your credit card limit. A credit card cash advance is usually treated just like a standard purchase, so the repayment terms usually follow the policies of your credit card. However, some credit card companies charge higher interest on cash advances than that of standard purchases, such as a daily rate compared to that of an annual rate. Therefore a cash advance on a credit card, depending on your credit rating and the terms of your credit contract, may in fact end up costing more in interest over a longer term than that of a short term payday loan despite the difference of interest rates between the two.

So what to do when low on cash?

It really depends on how well you are able to manage your money, and how well you can guarantee that you’ll be able to satisfy a debt when it is due. That said, the two main key points to consider between unsecured and secured loans are;

Interest rates

Only about 1/3 of payday loan companies (including those that are found only online) actually disclose the interest rate for payday loans to potential customers, instead citing fees that can re-occur upon payment failures - which can end up turning into an APR of over 2000%. Credit card companies nonetheless display the annual interest rate no matter the medium, which typically falls between 10% and 20%.

Time to pay

With payday loans, you must pay the debt back the moment your next paycheck arrives, or you pay a significant price. Credit cards on the other hand may be paid off over an extended period of time yet can result in making it easier to sink further into debt.

All of this becomes a moot point if you do not have a credit card or the means to obtain one, therefore the best solution is to start a savings account where it can accrue interest and be used for such unexpected emergencies.

That said, if a short term loan is the only solution then try to choose a reputable lender such as Ace Cash Express, CashNetUSA or TrustedPayday.com.

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