What is the difference between credit cards and payday loans?

If you would like to borrow money, there are plenty of options. If you should consider a payday loan or credit card borrowings, there are things you should be aware of before making a decision. We will look at pros and cons behind payday loans and credit cards in order to help you make an informed decision. Credit cards will be seen as great low-interest flexible borrowings as payday loans are more expensive but a good option as single borrowings. Find what fits your needs!

Credit cards have existed for about 30 years now and not everyone is eligible to obtain one. In order to get a credit card you need to be at least 18 years of age (younger applicants might need a co-signer), not have bad credit, be as debt-free as possible and have enough money for a security deposit. Having your own steady income is also mandatory and since 1st October 2011 household income cannot be accounted as personal income, as it was found that some families could end up not being able to pay the interest and spiral their debt. If your application was successful, you should get your card by post within the next two weeks from your bank, bank society or credit union.

Credit cards are a long-term commitment and require monthly repayments. If you require loans for everyday kind of expenditures such as shopping or fuel or would simply prefer to be able to take money out in the long term, credit card might be what you need. They offer better interest rate (Which.co.uk – some credit cards could offer APR low as 6.9 %) which means that they are really interesting in the long-term; they offer superior customer protection and allow amazing flexibility. You do not need to apply for a loan every time you want to take money out and you repay your loan in monthly instalments that fit your lifestyle.

A massive problem with credit cards comes when people use them unwisely and make the smallest monthly repayments. This spiraling debt often could result in people getting more loans to control their previous borrowings because of the interest. At the same time, a credit card might be a bit burden if not used at all and kept as an emergency fund. Your bank account will be affected if you go into bad credit and your bank could decide not to lend you money in the future.

Payday loans are on a massive increase and are becoming a threat to credit card companies. Payday loans are much easier to get with some companies offering hundreds of pounds within fifteen minutes of submitting an online application. Companies’ requirements vary but generally in order to be eligible you should be of a UK resident of legal age and having secure employment. Many companies would offer payday loans to students and pensioners, and even people currently out of employment, proving that they would have the means to repay. If you are successful, the loan would go straight into your bank account and you should receive an email confirming the transaction.

Payday loans are great if you need money on the day. They do not require long commitment or long application process – a phone call or an online application could be all that is needed. These quick loans are great as emergency funding – if you have bad credit rating and your bank would not lend you money, payday loans are a great alternative. They are also great for short-term borrowings; there is no obligation or bonds as soon as the loan is repaid. Companies offering payday loans often lend few hundred pounds up to a thousand, which is significantly less than what you could get with a credit card.

Payday loans are not your the right choice if you need a lot of money. One of the leaders in online borrowings, Wonga.com, offers payday loans with APR 5853 % (August 2014). Wonga offer up to £400 and the longest repayment period is 37 days, and the sum that would have to be paid back is £555.54. Offering the highest APR in the lending sector, payday loans are quite small compared to credit cards. They should not be used for everyday expenses such as shopping or fuel, but this means that they are quite specific to what they are used for and would not encourage repetitive borrowing.

It is important knowing what your options are when thinking about borrowing money. Credit cards are in decline because they are much harder to obtain than payday loans but offer much better APR rates than any quick loan company. However, the application process could be lengthy and depending on your needs, you might not require continuous lending. Your decision should be based on how often you need to borrow money and what sum you would require.

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