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Is a Payday Loan Better Than a Credit Card Cash Advance?

Is a Payday Loan Better Than a Credit Card Cash Advance

If you need extra cash quickly, you can apply for a credit card or seek help from one of the microfinance institutions that issue payday loans. Each of these products has its own advantages and disadvantages. Which option is right for you? Let’s find it out!

Table of Contents:

Things to Know About Credit Card Cash Advance

A credit card cash advance is a withdrawal of cash from your credit card account. Actually, you’re borrowing against your credit card to put cash in your pocket.

When applying for a credit card, it is important to carefully read the terms of service. it is easy to miss points that can lead to high fees.

There are instant credit cards that are issued directly at the bank. The requirements for credit cards are stricter than for payday loans. In most cases, you will need to provide not only a government-issued ID and SSN but also a proof of official employment. The applicant needs to confirm the size of income by providing a pay stub. At the same time, the length of employment at your current work must be at least 6 months. As a rule, credit card cash advances are issued to people over the age of 21. The upper age limit is 65-70 years.

A credit card cash advance allows you to pay for goods and services, both in in-store and online stores. In addition, many banks accrue cashback in the form of bonuses or real money for the payments made.

What to Know About Payday Loans

A payday loan is an unsecured, short-term loan for a small amount — typically $1,000 or less — that’s meant to be repaid with the borrower’s next paycheck.

Recently, such loans are gaining more and more popularity in Oregon and all across the USA. This is due to high approval rates and speedy funding. Relaxed eligibility requirements make it possible to get approved even if you are unemployed, retired or have bad credit. You need to be a legal US resident who has reached the age of 18. Proof of employment or collateral are not required. You just need to have a source of income.

Most lenders issue loans online, which meas you do not need to go anywhere to apply or finalize your applicarion. You can get an instant loan in 5 minutes online through our lender matching service. If approved, you can expect to have the money in your bank account right away. You just need to have access to the Internet.

Can I Get Payday Loans or Credit Cards for Bad Credit?

Despite the fact that modern banking institutions have become more loyal to their clients, a specialist will still be guided by the quality of your credit history. There are no banks that would not check your credit report, but at the same time, the decision to approve or decline an applicant for a credit card will always be individual, based on the internal policy of the company.

Thus, if you have bad credit, then the probability of getting approved for a credit card is low.

If your credit history is very poor, then you will need to fix it. For example, if you have an old debt, you need to repay it, pay interest and penalties, and then take your obligations responsibly and make payments on time. After 6-8 months, it is recommended to apply for a credit card: it is likely that the financial institution will agree to work with you.

In the case when you have a high debt load and a lot of existing loans, it makes sense to think about debt consolidation. This will reduce the cost of servicing loans, as well as improve terms and conditions, for example, you may qualify for lower interest rates.

If you have not taken loans before, you should ask the bank to lend you a small amount. This will increase the chance of approval and help you build credit, provided that you make payments on time.

When the bank reveals other disturbing facts in your credit history, such as a frequent change of addresses and phone numbers, it is better to apply for a cash advance credit card in person at the bank branch and explane the current situation. By eliminating doubts, you will increase your chances of approval.

Some Oregon banks offer to apply for bad credit credit cards with high interest rates. These cards may be available to you even if your credit is less than perfect.

As you can see, it is quite possible to get a credit card for bad credit. The main thing is to restore the reputation of a conscientious borrower and take financial obligations seriously.

At the same time, getting a payday loan for bad credit is not difficult. Approval rates reach 95%. Another benefit of such borrowing is the ability to improve your credit score.

Although microfinance institutions pay little attention to your credit history, they are required to submit data about your loan repayment to the three major credit bureaus. Therefore, you can improve your credit history by taking a payday loan online and paying it back on time.

As mentioned above, people with low credit scores can take out small loans from microfinance organizations. There are a lot of online lenders that work with poor credit and it is necessary to study all offers well.

Our loan matching service cooperates with an extensive network of reputable lenders that approve most applicants. You can apply through our online platform and receive up to $2,500 or up to 31 days.

Credit Cards or Payday Loans: Pros and Cons

Advantages of payday loans

  • It’s fast. Applying for a payday loan is much faster than applying for a credit card. The average time it takes to process a user request is 15 minutes.
  • No need to go anywhere. If approved, you should expect to have the money in your bank account within a few hours.
  • Apply around the clock. Online lenders operate 24/7. Most companies process the request instantly and transfer funds automatically.
  • No paperwork. The entire procedure is much simpler than that of a credit card. You do not need to provide many documents to get approved.
  • Bad credit is OK. Microfinance institutions are loyal to people with poor credit scores.
  • Money for whatever needs. You can use the money for literally anything: car repairs, home improvement, tuition costs, business expenses, vacation, medical bills, etc.

Downsides of payday loans

  • High interest rates. The annualized interest on payday loans can run as high as 300%or more and can even get more expensive if you fail to pay off the debt.
  • Small amounts. You can borrow no more than $1,000, but some lenders can lend you up to $2,500.

Advantages of credit cards

  • Grace period. A grace period is a time during which your credit card issuer does not charge interest on purchases. Thus, if you use a credit card correctly, you will not overpay a penny.
  • Money at hand. You can apply for a credit card “just in case”, that is, you can use it only if necessary.
  • Revolving credit limit. It is when a lender extends the same amount month after month.
  • Bonuses. This includes promotions in partner stores, cashback, bonuses, awards, discounts, etc.
  • Lower interest rates. Credit cards have high interest rates compared to traditional personal loans (the average APR for all accounts in 2022 was 16.27%.), but they are much lower than those of payday loans for bad credit.

Downsides of credit cards

  • Tough eligibility criteria. It is more difficult to qualify for a credit card. It will involve paperwork – you will need to prove your stable income.
  • Commissions. Despite the grace period, it will be necessary to pay a card maintenance fee.
  • Credit history matters. Getting a credit card for bad credit is difficult.
  • Cash withdrawal. Banks do not recommend withdrawing cash from a credit card, this procedure will entail a high commission and may cancel the grace period.
  • Processing speed. It is impossible to get a credit card instantly, it will take from 1 to 3 business days.

Is a Credit Card Cheaper Than a Payday Loan?

If we considere monthly interest rates alone, credit cards are considered cheaper than payday loans.

Yet, if you are using a credit card cash advance you need to be very disciplined. Costs can add quickly if you do not repay the debt in time. Interest is charged on a monthly basis. This means your balance increases and interest rates grow if you do not make payments in a timely manner.

One of the most common myths about payday loans is that they are very expensive. Yes, they come with high APRs, but they can be quite affordable if you repay the debt in a short period.

Moreover, payday loans come with limits, ensuring you never repay more than double what you borrowed. Credit card have no limit costs now.

Your debt could continue to increase until you reach your credit limit. Which may then rise even further.

Fees and charges can continue to get added and can push you over your credit limit leading to a monthly over limit fee. There are both late payment fees and over-limit fees onto what you owe each month.

If you continue missing payments, this could result in a debt spiral.

Payday Loans vs Credit Cards: How Do I Know What’s Right for Me?

The choice of the product should be made depending on the specific circumstances. You can make the right decision using thematic online resources. Our online portal contains up-to-date information on the best options for borrowing funds.

Applying for a credit card takes much longer. It can take up to several days to verify the authenticity of documents and credit history.

Microfinance institutions provide loans almost instantly. All transactions can be performed online – without leaving home. All you need is a computer or smartphone with internet access.

On the other hand, the interest rate in this case is significantly higher than that for using the bank’s borrowed funds. Therefore, it would be reasonable to borrow a relatively small amount for a short period, and only for urgent needs. Otherwise, overpayment will be significant. You should also remember that such loans come with high late payment penalties.

If you plan to pay for purchases and withdraw money to meet current needs frequently, it is better to choose a credit card. You will save on interest and receive cashback and discounts from partner stores of the bank. When using a credit card, it is important to use the means of payment wisely and regularly repay debts without going beyond the grace period.

It is also important to know how to use loans correctly. Only the correct use of credit products will help you avoid problems.

In any case, payday loans and credit card cash advances are better than pawnshop loans that are very expensive.

How to Get Rid of Debts Faster: 7 Important Rules

Rule 1: Stick to your payment schedule

The first step is to draw up a payment schedule and try to stick to it as much as possible. Conduct a detailed analysis of your income and expenses.

Any of the methods will show where you can cut spending in order to spend this money with greater benefit, namely, to pay off a loan. Try to avoid cases of late payments.

Skipping payments hurts your credit history, which can adversely affect your ability to refinance and borrow funds in the future.

Rule 2. Add 10%!

Early debt repayment really helps avoid overpayment. You should not save up for early repayment in order to pay off the debt at once. It is better to add a small amount to your payment every month.

If you add at least 10% to your payment every month, you will close the loan 2-3 times faster and save on overpayments.

Rule 3. Build an emergency fund

An emergency fund is money for unforeseen events. It is impossible to predict what may happen in the near future – job loss, illness and other force majeure circumstances.

In order not to miss subsequent payments on your loan, you must build an emergency fund in advance. You can even buy a piggy bank and put a certain amount into it every month.

  • It is better to save money when you receive a paycheck, and not at the end of the month;
  • A regular contribution to such a piggy bank, even a small amount (about 10% of your paycheck), will help to save a fairly substantial amount over time;
  • An emergency fund should include around three to six months worth of your fixed monthly living expenses;
  • An emergency fund will help you out in case of temporary financial difficulties.

Rule 4. Do not miss payments!

Never miss payments when repaying your loans and credit card debt. Otherwise, you will be charged penalties. Always make your payment a couple of days before the payout date to make sure your payout arrives on time.

  • To avoid this, you need to remember the due date and also prepare the necessary amount for payment;
  • We also recommend setting a reminder on your smartphone or making an entry in your calendar about the due date.

Many organizations allow you to choose the desired due date: in this case, you’d better choose a date about 7-10 days after your usual payroll. Thus, you can transfer the debt immediately after receiving the salary.

Rule 5. Start with the largest loan

If you have to repay multiple payday loans, then pay off all debts according to the schedule and place as much emphasis as possible on one loan.

At the same time, start repaying the loan that comes with the highest interest rate. Repayment of such loans will minimize overpayments, and the money saved will be used to pay off other debts.

In addition, some banks and organizations offer the opportunity to reduce the monthly payment by stretching the loan over a longer period. It is better to take advantage of this opportunity and at the same time save money on early repayment.

Never take out a larger loan to pay off a smaller one. This situation is likely to lead you into debt trap.

Rule 6. New sources of income

If you want to pay off loans faster, then you should take care of increasing your own earnings or find a part-time job that will be fully focused on repaying debts. Do you have a skill that can generate income?

You can also sell unwanted items, from an old washing machine to a baby stroller. Perhaps, you have something that has been gathering dust on the balcony for years, and this item can bring you an additional income.

Rule 7. Use refinancing

You can refinance your loan with your current  lender or with a third party financial institution.

  • This is possible when average market conditions change, for example, if the average mortgage interest has dropped significantly over the past few years, but you still pay the same interest;
  • The loan amount will remain the same, you will just repay it longer and in smaller installments. This will allow you to have more free funds that need to be used for early repayment.

Some banks are ready to give you one loan instead of several: that is, you pay one debt on more favorable terms.

It is worth making sure that the monthly refinancing payments will not exceed the total amount of your payments before you resort to refinancing.