Credit Cards vs. Payday Loans
Payday loans and credit cards are two of the best and easiest ways to get credit. However, there are major differences between the two, in the way they can be availed, the amount of credit that can be availed, the process of approval, and the interest rates applicable, etc./p>
Listed below are some of the key elements that distinguish credit cards from payday loans.
- The application process
Everyone can apply online for payday loans. The lenders of payday loans check the application, approve, and deposit the loan into your bank account in a day or two. Payday loans can be availed by people with bad credit as well. All the lenders require is proof of regular income, whether it is via a job, or disability/social security checks, or pension, etc. Credit cards are available to people with good credit. It can also be availed by people with an average credit score, but with such cards the interest rates can be higher than normal. Borrowers need to visit a bank or apply online to get a credit card. The banks/lenders will check the application and verify the credit score and other details before approving. This may take up to a week.
- Availability of funds
Borrowers need to make a fresh application each time they need a payday loan. If a borrower already has a previously unpaid payday loan, then he/she may not be eligible to get the new loan. Borrowers can use the funds in credit cards for a long time, often up to a period of 2 to 3 years. The duration is dependent on the terms laid down by the banks/credit card companies at the time of application/approval process and detailed on the agreement.
- The amount of funds available
A minimum amount for payday loans is often set by the government. In most cases, borrowers can take payday loans ranging between $250 and $2000. Such loans have to repaid within a period of 2 weeks to 5 months. With credit cards, borrowers can get access to large amounts of money depending on the credit history/credit score of the borrower. The credit card providers do not require the borrower to repay the money in a certain time frame. Borrowers however need to make a minimum payment and interest is charged on the remaining amount.
- Interest Charges
With payday loans, interest is charged immediately at the time of giving the loan. However, interest does not rise till the date of payment. In case of non-payment or late payment the interest increases significantly along with penalty fees and other charges. This can lead to a debilitating debt burden. The interest on money used on credit cards is charged from the first month onwards. If no money is used, then interest is not charged. If the money is repaid on time, then no interest is levied.
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