Credit cards Vs Payday Loans
With finances continuing to be tough for a number of individuals, many people are
looking for alternative finance options to credit cards. As a source of
debt for many, people are reluctant to use the plastic for fear of worsening their
financial situation. Payday loans are one product which have arisen as an alternative
to credit cards but how do they two products compare?
The first thing to remember is that, as with any form of financial product, there will be certain restrictions and common factors. All of these sorts of product will only be available to individuals who are aged 18 and over and therefore applicants who are younger than this will not be considered eligible.
Aside from this, the products have a number of differences that lead to a number of people actively choosing payday loans over credit cards and other short-term solutions to money problems.
Perhaps the main difference which is noted between payday loans and credit cards is the APR that is quoted for these. Admittedly, credit cards will have a lower interest rate but this is primarily because the repayments are designed to be ongoing whereas payday loans will only incur a single repayment.
As the loan is designed for a short-term period only, the rate of interest that is accrued will not be as high as the quoted APR might suggest. Alongside this, APR will vary between credit card lenders and some may find that the actual repayments amount over the year are higher than those offered with payday loans.
Length of lending
As stated above, the length of lending is extended for credit cards and this can lead to a number of financial implications being incurred. In fact, a common problem with credit cards is that it is easy for borrowers to end up continually only paying the interest off on their purchases, meaning that the original loan amount is still outstanding for a long period of time. This will see the loan process extended over a longer period of time and means that people will pay back more money.
This is one of the most common problems which is associated with credit cards and can see some people end up in a vicious cycle of debt. A payday loan, on the other hand, is repaid in full with a single transaction being taken automatically using your debit card.
This means that at the end of the loan period you will have paid off all of the money which is owed, with both the original loan amount and the interest which has been accrued being combined in the one payment.
This means that this form of money lending is easier for some borrowers to manage and reduces the chance of people finding themselves simply paying off the interest month after month.