Payday Loan Versus Credit Card Cash Advance
If you’re in a cash crunch, two of the options that have probably occurred to you have been the payday loan or taking a cash advance on your credit card.A credit card cash advance seems like a reasonable answer to a fast cash need. But the truth is, it may not be everything its cracked up to be. With a payday loan, you pay one upfront fee before paying back the loan on your next payday.
Most of the time, the fee for a payday loan is somewhere between $17 and $25 for each $100 you get in a payday loan. In some states, however, that can go as high as $30 per $100. For example, you might take out a payday loan for $500, and in two weeks need to pay back $587.50.
The advantage that a Payday loan has is that it’s short term. Once it’s paid back, it is over and done with. It doesn’t drag on, the way that a credit card cash advance payment can drag on.
Still, the payday loan isn’t always that clear. Most consumers who get a payday loan will have between eight and 13 payday loans per year at their payday loan lender. What often happens is that customers wind up taking out an additional payday loan in order to pay off the first, incurring fees each time.
Credit Card Cash Advances
Taking a credit card cash advance may be another option. While the interest rate on a credit card cash advance is likely to be less than the interest rate on a payday loan, the rate is still usually pretty high. You can wind up with an APR of between 15 and 25 percent.
In addition, most credit card companies will use your monthly payments to pay off the items with the lowest interest rate first. This means that your purchases will be paid off long before that higher-rate cash advance is paid off. Depending on what kind of a balance you carry on your credit card, which can mean that it will take months if not years to pay off the cash advance portion of your credit card bill.
Which is Better?
Again, each of the options has their own benefits. If you can take a payday loan and pay it back immediately, without needing another one, you’re better off than a credit card cash advance. However, if you know it will take some time to be able to pay off the debt, a credit card may be a better option.
On the other hand, if you have a high credit card balance for purchases, it can still be months or years before the cash advance is paid off. In these instances, a payday loan is probably better for you.
Here is the video on Youtube: