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Credit Cards vs Payday Loans


If you need to borrow money instantly, for example because you have faced an unexpected medical bill or you need some car maintenance; then there are many financial options out there for you to explore, including different types of short term loans that may be able to help you get out of a tricky situation.

Two of the more popular options are payday loans online and credit cards; payday loans are short-term loans taken out when absolutely necessary and in order to pay for unexpected expenses which are repaid to the lender at your next payday. These loans should never be used to pay for anything that is not absolutely essential and they should never be used for exorbitant or expensive things you don’t need like luxury holidays or a sports car.

Credit cards are a very popular and longer term financial option. The way it works with credit cards is that you will have a credit limit on your card which you can use to purchase bigger items and pay this back to your bank or credit card company for much lower interest rates over a longer period of time.

However credit cards can lead to overspending which can become dangerous once you realize you are not able to repay the bank on time and then need to seek out a payday loan or another form of short term finance to help with debts and bills piling up. That is why when it comes to both credit cards and payday loans it is vital to understand how much you are borrowing and when you will be able to repay that.

What Are The Advantages of Credit Cards?

Credit cards are commonly used and well-regulated credit facilities that allow you to borrow money, only up to whatever your credit limit is. For example, you may have a credit limit of $5,000 which will mean that you can only spend up to that amount before having to at least start paying off the balance of the money spent with your credit card provider.

Using a credit card can be good because you are able to transfer your credit card debt from one card to another to take advantage of lower interest rates. This is often known as a ‘balance transfer.’ Some credit card companies allow interest free balance transfers, allowing you to consolidate your debts from numerous credit cards into a single, more manageable debt amount on one credit card.

Credit cards often require a minimum payment each month, whereby the credit card holder and therefore borrower starts to make minimum payments towards what the owe the credit card company. This will usually include credit (or ‘capital’) plus interest, chargeable transaction fees and money that you have borrowed.

The advantages of credit cards is that they have relatively low interest rates compared to unsecured loans like installment loans and payday options so they are a good way to manage cash flow throughout the month. If you have a sudden and unexpected big expense the credit limit on your credit card may not be high enough to borrow the money from the bank.

People with 0% credit cards can use their credit cards to cover larger payments as it allows them to repay the balance over a number of months instead of having to pay it all out at once. They may also not have the cash to pay a large expense like repairing a truck or buying a new kitchen. Credit cards should not be used to borrow for leisure purposes as this may cause you to fall into more debt and face legal action from your bank or lender, causing you to potentially end up in court.

Credit cards can become dangerous when you realize that you have overspent on it and you are not able to control your repayments, this can lead you to getting more cards or loans in order to repay old loans which puts you into a vicious cycle of debt. With payday loans you borrow a specific amount, the amount that you need and you repay this amount plus the interest at the end of the month. You may be less likely to face spiralling debt if you are in a good financial position if you take out a payday loan.

What Are The Advantages of Payday Loans?

Payday loans are best used for emergency and unexpected payments that you need to deal with immediately in times of financial emergencies and in that moment. Examples of this are your car breaking down and needing repairs, unexpected medical bills not covered by an insurance provider or an unexpected medical or veterinary bill that you need to deal with.

It is expected that you payback your payday loan on your next payday; this means that they usually have a high interest rate or APR, much higher than that of credit cards. Unlike credit cards, payday loans should not be used to pay for things such as holidays because you will incur unnecessary interest charges.

There are many things to consider before taking out a payday loan which may help you decide whether it is the best idea. Payday loans can be great and can be used wisely when you know that you will be able to repay your loan but be careful, high interest rates can lead to damaging consequences if you do not repay your payday loan on time.

Make sure that you will be able to repay your payday loan on time so that you do not face extra fees or damage to your credit score.

Should I Get a Credit Card or a Payday Loan?

This entirely depends on your situation, there are both pros and cons to both getting a credit card or a payday loan.

If you are in a good financial position and you have faced a big expense which you do not currently have the money for but you know you will be able yo pay off at your next payday then a payday loan could be for you.

If you have bad credit history, you might struggle to get a payday loan or the lender might charge you a much higher APR or interest rate on your loan; in this case you could look to a credit card, although the credit amounts are smaller you can pay off over a longer period of time at lower interest rates.

Be careful, do not apply for and max out many different credit cards just looking for that lump of cash; this can lead to serious debt issues further down the line when you have too many cards to manage your debt.

Once you have recovered your debt from critical to manageable, a low interest, high credit limit card can be a good way to consolidate your debts, and bring your monthly repayments back under control.