Cash Advance and Payday Loans Compared
If you need to borrow a small amount of cash urgently the first options you will consider are: credit card cash advance and a payday loan. We’ll try to show the pros and cons of both options for typical situations.
Today any one can apply for a payday loans online. Payday loans have a long history – classical payday loan was given in a form of a post-dated check with the borrowed amount and an interest (or a fee) written on it. On the due date the chis checked was cashed by a lender. If the borrower had not enough money on the account on the due date, the check bounced that caused additional fee. Now payday loans are offered online and that allows you to borrow money in a very convenient way – you need to fill a short online application where you usually prove your age, residence, and that you have a job with more than $1000 regular salary. No fax is usually needed and no credit check is performed to approve your loan.
If you decide to take a cash advance from your credit card account you need to consider that it will be much more expensive than your regular credit card purchases. Usually the following complications are involved with credit card cash advances:
- Increased APR for cash advance. Usually it is about 20-25% APR which is big in comparison with regular credit card APR of 12-15%.
- Additional fee of 2-4% is usually taken over an entire cashed amount
- There is no grace period for cash advance – the interest needs to paid since the very moment when you get the money from the ATM.
- Usually you will be able to repay cash advance debt only after you pay off the whole of your credit card debt.
So basically if you go with the credit card cash advance it will cost you about 22-30% APR. But bear in mind that if you will fail to pay off cash advance debt you can face with many problems – damaged credit score and increasing debt because of penalties and additional fees.
Let’s calculate how much it will cost you to take an average pay day loan of $300. Usually a pay day loan fee is about $10-$17 for every $100 borrowed. So for your $300 it will be about $30-$50. Expensive enough – for a one-week loan it will be about 480% APR, for two-week about 240% APR.
The only real advantage of a payday loan is a streamlined and quick application process that doesn’t require credit check. In other words, to those who have an active credit card payday loan is useless, but the point is that people who never had any relations with banks and have bad credit and damaged credit history payday loans can be the last and only option to get money urgently. And the hardest part will be to find out money to return on a due date.
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