Payday Loan vs. Credit Card

A bill is due tomorrow, your bank account is low, and you need cash fast.  What can you do?  Many turn to the payday loan option.  This option has several pros and cons.

The Pros of a payday loan:

o You can get cash in less than an hour.

o You can make the transaction online.

o You don’t need to put down any collateral, they’re unsecured loans

o You don’t need much information to process the loan.

o The money is deposited right into your account

The cons of a payday loan:

o The fees are very high, generally ranging between $30 and $40 per $100 borrowed.

o The term of the loan is short, usually less than 14 days, which means you absolutely must have the money coming your way soon to repay the loan or you’ll be paying very high fees. 

o Many lenders have an automatic deposit and withdrawal system whereby they deposit a loan into your bank on a monthly basis, and then take the money out on a regular basis.  Not only do they have free access to your bank account, you’re paying monthly fees and the plan can be difficult to get out of.

Another option you may consider is a cash advance from your credit card.  Here are the pros and cons of that option.

Pros of a credit card cash advance:

o There is no authorization phase.  It is your credit card and you've already gone through the application process.
o All it takes is a trip to your local ATM and you can deposit the money in your bank.

o You know and have a certain amount of experience with your creditor versus no prior relationship with a payday loan company.

o You control when you pay back your cash advance.

o You can borrow as much as you need, up to your limit

Cons of a credit card cash advance:

o The fees are high.

o Your interest rate for your cash advance may be different than your regular APR

o Without a pre imposed payment deadline, the interest can climb and you may end up paying on your cash advance for years.

When comparing your options, consider how much money you need, how fast you will be able to pay it back, and what fees your loan will cost you.  Consider obtaining a small personal loan or speaking with the company or person you owe money to, to see if different payment arrangements can be made.  Both payday loans and credit card cash advances are an expensive solution. However, both can also get you out of a quick financial bind.

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