Payday Loan vs. Credit Card Advance
Sometimes life gets ahead of your finances. As Murphy’s Law puts it, anything that can go wrong, will go wrong. Somehow, it always seems to happen at once. You get in a car accident shortly after you just spent all of your savings to get a new house. That means that you don’t have the money in your checking account to get your car towed let alone fixed.
When that happens you find yourself stuck between a rock and a hard place. You need more money than you have, and you have to find a way to make ends meet. Oftentimes you only need a little bit of extra money to make it through the difficult situation. There are a few different routes you could take for a last minute, short-term loan. You could take a credit card cash advance or get a payday loan.
You may have heard negative things about payday loans and credit card advances. While it’s true that these types of loans aren’t always the best idea, sometimes you have to do what you have to do. If your budgeting has not gone as planned, and the emergencies keep rolling in, you’ll find yourself needing more money. When this type of situation rolls around, you cannot help but take out a loan. That means that you have to figure out which type of short-term loan is right for you.
In order to figure out which of these paths is best for you, you have to look at the pros and cons of each loan type. Before you can even do that, you must have a simple understanding of the two loans. A payday loan is normally a relatively small amount of money that the borrower is expected to pay back when they get their next pay check. Some people think of it as an advance on your pay check. A credit card advance allows cardholders to withdraw cash either up to the card limit or a percentage of the limit. Now that you know what they are, you have to figure out if one of them has more benefits for you and your situation.
What are the good qualities of a payday loan?
- You do not have to have a credit card in order to get this type of loan.
- It normally does not take long to get approved for a payday loan.
- Some lenders even have an application process online, which can mean that you can have the money in 24 hours. It also means that you don’t have to have a car because you can get the loan from wherever you are.
- The application for a payday loan requires only basic information, and therefore is not a complex process. It won’t take you long to fill out the application, which is part of the reason that the process is so fast.
- You can get $100 to $1000 depending on what state you live in, the institution you borrow from and what you qualify for based on your income.
- This type of loan doesn’t require a credit check. Often lenders only want proof of employment or some form of income.
A payday loan is great for someone looking for a little extra cash that they can get quickly without a credit card. It’s a quick way to pad your finances.
Credit Card Advance
- Because you are already approved for the credit card limit, getting the money is a quick process.
- In order to get the loan, you have to go to an ATM or a bank, and you can withdraw the money right away from one of these locations.
- If you don’t have a lot of debt on the card, the interest on the loan is normally fairly low when compared to a payday loan.
- In this debt-free scenario, it usually doesn’t take long to pay the money back either because it is a small loan and you start paying right away.
- It is a short-term loan, which means that you will pay it off quickly and incur less interest.
A credit card advance is great for someone who has a credit card and needs a little bit of extra cash to get them through to their next pay check or to pay for something that can’t be paid for with a credit card.
Both of these loans have their positives. Maybe you find some of the positives are better for you than others. You should try and review the positives to figure out which type of loan is really best for your situation. If possible, you should talk with a financial professional before taking out these loans. However, this luxury isn’t always available because when you need a little extra cash you often need it as soon as possible. Before you can really decide which is right for you, you also have to take a look at the cons.
What are the negative qualities of a payday loan?
- Often, getting a payday loan means getting charged high fees.
- The interest rate on this type of loan can also be quite high.
- Because you’re expected to pay the loan back when you get your next pay check, you might not have a lot of time to get back into financial security.
- You have to be employed or have a steady form of income in order to qualify for a payday loan.
- Due to the fees and the high interest you often pay back much more than you borrow. This can cause a cycle of debt. All that means is that you will have to keep borrowing money in order to pay back previous loans.
If you need money long term, this type of loan can be costly. This type of loan can also result in you needing to take out more and more loans.
What are the negatives of a credit card advance?
- You have to start paying the advance back as soon as the next payment cycle.
- If you have prior debt, your advance often gets paid after the debt you already had on the card. This can cause the debt to grow, and stick around for long periods of time. This can have a negative impact on your credit score.
- Interest rates can range from 3 to 5%, and are normally higher than regular credit card transactions.
- The interest compounds daily, which can mean that your debt can grow rapidly.
- All you need to get a credit card advance is identification. That can make it easy for someone else to get your money in this way.
- Because you have to get this type of loan from an ATM or a bank, you have to be able to get to an ATM or a bank. Depending on if you know your pin or what day of the week it is, this can make the process take longer than you want it to take.
It is easy for this type of loan to grow exponentially, and cost you a lot of money.
Just as both of these loans have their positives, they also have plenty of negatives. Neither loan is perfect, but in an emergency situation they can be better than nothing. Often any type of loan or advance has negatives. If you’re in a situation where you need extra money, you can’t always get away without taking out a loan. You just have to pick the one that makes the most sense for you.
What Should You Do?
When you look at these loans side by side, you realize that neither is perfect. However, if you need a little bit of cash to get you through a rough patch, these loans will do just what you are looking for. If you don’t have a credit card, your choice is simple. You have to get a payday loan because you have to have a credit card in order to get a credit card advance. No matter which one you choose, you have to pick the loan that is going to fit your needs and lifestyle the best.
It is important to realize why you need a small loan at all. Normally this is a sign that you need to reevaluate your finances. Yes, accidents and emergencies happen. You know that they’re going to happen, so you should be able to be prepared at least a little bit. You can start getting prepared for emergencies by setting up an emergency fund. When you have an emergency fund, you don’t have to get a payday loan or a credit card advance because you have the money you need in your savings account.
Whenever possible, you don’t want to take a payday loan or a credit card advance because you can end up paying way more than you borrowed. However, you don’t always have much of a choice. You have to look at the pros and cons of them both and pick the one that fits your lifestyle the best. And then start planning a more secure financial future by budgeting and saving money.