Payday Loans vs Credit Cards

17th January 2022

Payday loans and credit cards are the two main sources of credit available to people in the United States. They are very similar in many ways but the differences are significant. We’re going to expand on some of the important differences that make credit cards a significantly better choice than payday loans, particularly credit cards no credit checks like Thimbl, a significantly better choice than payday loans.

When comparing payday loans vs. credit cards, it’s essential to understand the implications. If you’re struggling with payday loan debt, consider exploring options for payday loan relief to regain financial stability.

Similarity: Payday Loans and Credit Cards are Short Term Loans

Both the payday loan and the credit card are for short-term immediate expenses. They give you a small extra amount of money that you can use whenever you want. They both charge interest on the amount of money you use and require payment within a short period of time ranging from weeks to months, but for a payday loan you can use services like MoneyZap and for a credit card you need an actual bank. This is where the similarities end.

Differences Between Payday Loan and Credit Card

  • Payday loans are cash, and credit cards are a line of credit. A $ 300 paycheck advance puts you $ 300 cash in your pocket. On the other hand, a credit card gives you the option to spend up to $ 300 but doesn’t immediately add money to your bank account. An important difference is that some bills such as rent, utilities, cable, and cell phone sometimes cannot be paid with a credit card.
  • Payday loans give you the full amount at once and charge you for it. A $ 300 paycheck advance gives you $ 300 straight away. Even if you don’t use the money, you will be charged interest on the entire $ 300. On the other hand, a credit card has a credit limit that only charges interest on what you use. The key concept here is the use of funds. A payday loan makes all funds available for use on day 0. Thus, they charge you interest on the entire amount starting from day zero. With a credit card, you only use funds when you make a purchase with the card. Therefore, the interest counter starts the moment you swipe the credit card and only for the amount charged. If you never use your card, you will never pay interest on a line of credit.
  • Credit cards have a grace period without interest. As we noted above, the payday loan interest counter starts immediately. You pay interest on credit cards only for what you use. The bonus with credit cards is what we call the recent activity grace period or floating credit card expiration. This is a wonderful zero interest rate period from the day you swipe your card until your next credit card statement. If you pay the amount of your purchase when you receive your next statement, you will pay 0 percent on that purchase. This period can be up to 30 days if your purchase occurs immediately after your last checkout. Strategic shopping planning can help you manage your cash and minimize your credit card interest expenses.
  • Payday loans are more expensive than credit cards. The average US credit card charges around 18% per annum but most entry-level credit cards charge around 22%. On the other hand, the average payday loan requires over 400% interest. Traditional payday loans are much more expensive than credit cards. This is why, if you have a payday loan and a credit card, you should always pay off the payday loan first. Installment loans are no exception. In almost all cases, your lending rate will be lower. You should prioritize paying off loans with higher interest rates to save on interest costs.
  • Payday loans do not have flexible payment schedules and amounts, unlike credit cards. When you remove debt from a credit card, you can pay off the balance at any time and in any number of payments. There is a monthly report and you have to pay the minimum amount at least once a month. The loan allows you to flexibly pay principal and interest at your own pace allowing you to choose how much and when to pay. Meanwhile, with traditional payday loans, you have to pay a certain amount on time. Traditional payday lenders make it difficult to change payments and often charge fees for changes. It is a strategy aimed at helping them make money.

You can get a traditional payday loan without a credit check but credit cards require a credit rating. Credit cards are cheaper, offer a more flexible source of credit, and are more lenient in repayment. Why doesn’t everyone have a credit card? You’d be surprised how many people don’t realize this.

Nevertheless, having a credit card requires a good credit history. Even introductory cards that only offer you a low credit limit will not be available to those with a credit rating below 600 or very little credit history.

Payday loans and credit cards are two ends of the spectrum. We understand that not everyone can qualify for a credit card. Several MFIs were created to help people with low credit scores get cash in case of emergency and to rebuild their credit with loans in installments.

Online loans have the lowest cost on the market and the most flexible repayment terms. We know there are financial emergencies and unforeseen events. Reliable MFOs can delay and break payments to keep your loan on your budget.

An interest-free loan is most often issued by the management of the company to its employees as well as by the state to certain categories of citizens. A bank loan always provides for the accrual of interest taking into account the main purpose of a financial institution in making a profit.

 

As the advantages of the loan, it should be noted that there is no overpayment and no link to the borrower’s credit history. The basic features of a loan that distinguish this type of loan from a standard loan include:

  • transfer of property for temporary use to another person for a specified period after which the debt is subject to return to the owner without the possibility of replacing it with a similar object or compensation payment;
  • no obligation to pay interest charges for the use of a property.

A large number of individuals and organizations often use various types of loans to solve certain problems. At the same time, many borrowers tend to confuse the concepts of loan and credit since credit is a type of loan with a fine line of differences lying between the two definitions.