How a Payday Loan Can Be Cheaper Than a Credit Card

If you’ve taken the time to check out the interest rates charged on a payday loan, you may have received a bit of a shock. At first glance the interest rates seem exorbitantly high, with some lenders charging as much as 782% per annum.

By comparison, the interest rate charged on your credit card balance might only be 19.5% per annum. The seemingly lower rate often tempts people to use a credit card to withdraw money when they need cash in a hurry.

Unfortunately, most people never take the time to run accurate comparisons in terms of their own financial situation before deciding on the type of credit they use. If they did compare their options properly before proceeding, many would be surprised by what they’re really paying to borrow money.

How Much Is Your Credit Card Really Costing You?

If you withdraw $1,000 cash from your credit card to cover your emergency expenses, you have access to the money you need right now. Of course, you also have an outstanding balance on your credit card to repay. Most credit card companies charge a higher interest rate for a cash withdrawal; sometimes as much as 10% higher than credit purchases.

For the purpose of this example, let’s assume you only pay the minimum payments due each month off your credit card bill and we will leave the interest rate at 19.5%. Your credit card provider usually calculates your minimum repayment based on a percentage of the remaining balance owed, so the amount you need to pay will reduce over time.

Loan Amount$1,000
Interest Rate19.5%
Minimum PaymentPercentage of outstanding balance
Time to Repay Debt8 years 8 months
Total Amount Repaid$2,074

In the example above, you can see it will take 8 years and 8 months to repay the amount you borrowed, based on only paying the minimum payment due each month. The example also assumes you don’t use your credit card for any other purpose while you’re repaying your balance. Of course, you will be able to repay your debt much faster by paying more than the minimum amount due.

How Much Is Your Payday Loan Really Costing You?

Before you shun the idea of borrowing money on a payday loan, consider whether you might be able to save money in the long run or not. After all, the payment times on a short-term cash loan can often mean you pay off your debt much faster.

Take some time to enter your figures into a good payday loan calculator. Work out your exact interest charges and any other fees associated with the loan. Then enter the amount of time you need to repay the amount you borrow and enter the term into the calculator as well.

Loan Amount$1,000
Interest Rate$30 per $100 (391.07%)
Length of Loan28 days
Total Amount Repaid$1,300

In the example above you can see the steep interest rate of 391.07% per year is considerably higher than the rate charged on credit card debt. However, as the length of time taken to repay the debt is significantly shorter, you end up repaying much less money overall.

The key to choosing the right payday loan for your needs is to compare the options available before you proceed. Always take time to enter your figures into a good calculator and work out what options may suit your personal financial situation best in the long run.



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Payday Consumer Notice:


The APR of a payday loan varies in each state and depends on the lender, the advance amount, fees and terms of the transaction. The APR in our network of lenders can range from 265.36% to more than 700% on 14 day terms.

Implications of non-payment

Implications of non-payment vary from lender to lender and by state regulations. If you are unable to repay your loan you may have one or all of the consequences listed below depending upon the terms of your lender. Fees may include but are not limited to: insufficient fund fees, administrative fees, late fees, non-payment fees, court costs and legal fees.

Collection Practices, Credit Score Impact

Payday Loans are due and payable in full in one payment at the end of the loan term, unless the Lender offers renewals or other repayment options. Make sure to review the terms and conditions of your lender if you fail to pay on time.

  • Late payments of loans may result in additional fees or collection activities, or both. Each Lender has their own terms and conditions, please review their policies for further information.
  • Non-payment of credit could result in collection activities and your account could be turned over to a collection agency. Each Lender has their own terms and conditions, please review their policies for further information.
  • Failure to pay your loan on time could result in your lender reporting the delinquency to a credit reporting agency. This could result in the lowering of your credit score which could make borrowing more expensive in the future.

Renewal Policy

Renewal policies vary not only by lender but also by state regulations. Every Lender has their own renewal policy, which may differ from Lender to Lender. Renewal fees vary by lender. Please review your state regulations and you lender's renewal policy, terms and conditions.