Credit Cards vs. Payday Loans

If you've ever been short on cash before, you are probably familiar with the term payday loan. This type of loan offers really fast cash (less than 24 hours) with no credit check. Loans are usually up to $500 and can be approved almost instantly. The loans are controversial due to the relatively high fees associated with them, ranging from $10 to $30 per hundred borrowed.

Another way to borrow cash fast is to take out a credit card advance. This is also a good way to borrow money when you're in a bind, but that is assuming you have a credit card at all or with any credit remaining. Credit card cash advance fees are less than those for pay day loans, but can still be kind of high ranging from 19%25 - 30%25 APR. One strike against the credit card advance is that once you borrow the cash and start paying off the balance, the payment is counted against the lower interest debt first. So if you already have a high balance from purchases and add to that balance by taking out a cash advance, you may end up paying for that cash advance long after you pay back the amount you borrowed in the first place.

One advantage the credit card advance has over the pay day loan is that it can be paid over a much longer time and won't result in enormous fees and charges unless payments aren't made at all. On the other hand, it increases the debt ratio on your credit report, thereby lowering your FICO score. Another plus for the credit card is there is no waiting for money to be deposited. If you have a credit card, you can go to the ATM and withdraw cash against your account. This is assuming you remember your PIN, and that you don't mind walking around with $500 cash in your pocket. The payday cash loan would be deposited to your checking or savings account directly, and from there you can write checks or use your debit card, much safer than carrying around a ton of cash.

So, next time you're in need of a cash loan, think about your options before you act. Both options can very useful and both can also be detrimental to your financial health, so borrow carefully.