Many people need to borrow small amounts of money and may be looking to pick between different types of borrowing to find which suits them the best. As we are all different there is not a ‘one size fits all’ solution. This means that it is important to look at some of the main differences between the two types of borrowing so that you can pick the one that will suit you the best.
It is firstly important to note that a payday loan requires no credit check. This means that if you have a poor credit rating then you will still have a good chance of being approved for this type of loan. With a credit card you will need a good credit rating to get one and the better your rating the better chance you have of being accepted. If you are not sure as to what your credit rating might be then you can look at your credit record for free and you will be able to find out what the chances are of you being accepted for a credit card or other type of loan. This can be quite a handy check to do and it will not show up on your credit rating or change your credit record if you do so.
Speed of organising
If you need the money really quickly then this could determine which you use. If you already have a credit card then it will be quicker for you to use it as you will not have to set up a new loan. However, if you do not then it could take quite a while to get one. You will have apply and wait to see if your application gets accepted. Then you will have to wait for the card to arrive and for the PIN to arrive before you can use it. This could take a good week and this might be too long to wait if you need the money really fast. With a payday loan, you can often organise them within a few hours. This means that they money will be in your bank account very quickly and in some cases it can even be done outside of normal working hours.
The way that you have to repay the different types of borrowing is very different and it is important to make sure that you are happy with this repayment system and that you will be able to afford it. A payday loan has to be repaid in a lump sum on the day that you are paid. In order to help you, a direct debit is set up to take the payment on the day that you are paid. This is handy for anyone that might otherwise forget to make the payment. Doing it on payday means that you should have the money available in your bank account to cover the cost of the repayment. It is a lump sum repayment, which means that it will all be paid off in one go and you will be free of the loan quickly. However, it does mean that you will have to be careful that you can manage once that money leaves you bank account as you will need to pay all of your other bills.
With a credit card the repayment is very different. You are sent a bill between 4 and 6 weeks from when you get the card and you will have options with regards to payment. You will be able to pay off everything you owe and pay interest at all. You will be able to pay just a small minimum amount and pay interest on what is left owing. You can also pay more than the minimum amount but not the full amount. There is therefore a lot more flexibility there but you can pay in smaller instalments which are likely to be easier to manage.
The cost will vary between lenders as well as being different for a payday loan compared to a credit card. With a credit card, the borrowing is completely free if you repay the full balance when required. However, if you do not repay the full amount owed, then how much it costs will depend on how long it takes you to repay the card. It could take years if you only repay the minimum and this will mean that you will be paying interest payments every week which could cost you a lot of money. It can be hard to actually calculate how much, as you may not be able to predict how much you will be able to afford to repay each month and if interest rates go up these costs will also go up. Take a look at popular (and reputable) lenders such as Cobra for more information on rates.
With a payday loan you should be able to repay the loan all in one go. With a credit card, although yo have the option to also do this, you can repay less and the loan could hang around for a long time. You may prefer a loan that is cleared quickly.