Trying to decide what type of borrowing to use can be pretty tricky. You will need to think about whether you can get enough money using the type that you select, that you can afford the repayments and that you are happy with the lender as well. Sometimes lending types can seem quite similar and it is important to weigh up the differences between them. For example, if you are choosing between a payday loan and a credit card.
About payday loans
A payday loan is usually for a few hundred dollars maybe up to a thousand. Due to the fact that no credit check is done it means that even if you have a low credit score you can still get one. You will have to have an income though and a bank account. The loans are usually repaid in one instalment which comes out of your checking account by direct debit on the day that you are paid. This means that you will not forget to pay it and you will get the repayment all done at once.
The problem with this is that you will need to make sure that you have enough money to cover that repayment as well as all of your other expenses in that month. If you do not have enough to cover the repayment you will be charged extra money and the lender will keep trying to take the money until it is available. As it is set to come out on your payday it should be fine anyway as long as there are no problems with your pay arriving.
A payday loan can normally be organised very quickly. Some companies can get you the money within a few hours and others may just take a few days. This means that if you need money in an emergency then they can be very helpful.
As a payday loan is available for those with a low credit score then it means that it is expensive compared with some other types of lending. This is because the lender is taking a risk by lending to someone that may not be able to make the repayments. However, they have to be repaid quickly, which means there is less chance of gees and charges escalating and the loan should not be stressful as it disappears quickly.
About credit cards
A credit card can be used for buying goods and they do not have to be paid for until the bill arrives. When the bill does arrive, it will have payment options. The borrower will have to repay a minimum balance which will usually cover the interest, any charges and just a tiny bit more. However, if they choose this option they will have to pay interest on what is left unpaid. They will also have the option of repaying the balance in full and not getting charged anything at all.
You do need to have a reasonable credit score to get a credit card and when you apply it will take a while before the card arrives and you will then have to wait for the PIN as well. You may also be turned down and have to apply elsewhere.
Credit cards can be very expensive. If you only repay the minimum balance you could find that you will end up paying a lot in interest. It can be difficult to monitor how much interest you are paying as well because you have to pay it off each month. It is therefore easy to forget how much you are actually paying and therefore to forget that the card is expensive and should be repaid.
Choosing between them
If you have a low credit score then you may have no choice but to get a payday loan. If you need money quickly and do not already have a credit card then applying for it may take too long and so you may prefer to go for the payday loan. Although a payday loan can be dearer, this will depend on how quickly you repay the credit card. If you plan on repaying it right away then the credit card will be much cheaper as there will be no fees at all. You may even be able to borrow the money for longer without repaying it. However, if you plan on only repaying the minimum then the credit card could work out much dearer. It could be years until you pay it off in full and paying interest each month will be costly.
It can be obvious which is the right one for you but it may not be so. Think about how they work and which you think will suit you. If you feel there is a risk of you being reckless with a credit card and only repaying the minimum then this will be an expensive choice compared with the payday loan which you have to repay very quickly.