Cash Advance From Credit Card Vs Payday Loan – Which Is Better?
If you are looking out for an easy way to borrow a small amount of money so that you can meet your urgent financial requirements, payday loan is not the only option that you have. There can be an array of alternatives that also include borrowing a cash advance credit card. Though it is obviously not a great alternative, it is still better, safer and cheaper as compared to highly expensive payday loans. Following is a brief rundown on some of the important factors that you must look into while you are comparing these two easy financing options.
As compared to payday loans, it is much easier and quicker to get a cash advance from credit card. Many banks these days allow you to use your credit card as an ATM card and withdraw cash as per your requirements as long as the withdrawal amount does not exceed the maximum limit allowed to you.
This way, you can get your cash in hand the moment you need it. But, despite so many lucrative features, payday lenders still require you to fill out an application form and follow a set procedure. Even the approval comes within one to two business days. On the other hand, if you are allowed to get cash advance using your credit card, you can get it even on a holiday.
The second biggest factor that you have to look into is the cost of loan. Payday loans are much costlier than a cash advance from a credit card. Though even credit cards charge a very high rate of interest if you compare the same with the rates charged by conventional lenders for conventional loans, the rates are still much lower as compared to the rates charged by payday lenders. Interest rates on payday loans usually range from 250% per annum to over 750% per annum. On the other hand, no matter how high the rate on a credit card is, it is never a 3-digit APR. Besides that, if you pay back the cash within a certain time period, you may not have to pay any interest at all.
The penalty charges on payday loans are also extremely high while the picture is not that horrible when you borrow a cash advance from credit card and do not pay it back in time. Additional interests are charged in both cases, but since the rate of interest is comparatively very low in credit card advance, the overall outstanding balance does not grow as fast as it does in case of a pay day loan.
Even the repayment terms and conditions are comparatively very convenient with a cash advance from credit card. You can get the money using this option any time as per your requirement. Where the due date in case of a payday loan is your next pay day, there is no such due date with credit cards. If you repay the full amount within a certain period of time, no interests are charged. But, if you repay after that period, you will have to repay it back with interest.
There are various other factors also that you must take into your careful consideration while you are comparing a cash advance from credit card with a pay day loan. For example, where collection calls start immediately after you miss a payment on a payday loan, it does not happen so quickly in case of credit cards.
But, despite all the benefits
that a cash advance from credit card has to offer, you are advised not to misuse this financing option. You must always take financial responsibility and pay back the money as quickly as possible. In fact, you must always maintain a decent amount of emergency savings fund so that the need for such cash advances does not arise at the first place.