Given the scarcity of payday loans granted in recent years, many users have decided to use credit cards to finance their projects. Although both are products to get money on credit, they are different with certain characteristics and advantages that will make them more or less adequate to our needs.
When should we turn to payday loans
Payday loans are perfect for financing large-scale projects. However, what happens when we use credit cards to get large amounts of financing? There are many credit cards that allow us to access the same amount of money as payday loans, but that does not mean that we should use them in the same way.
The interests of payday loans are much lower compared to credit cards as they are designed to get a larger financing to be repaid in a period that can last several years. According to the latest data from the Bank of Spain, the average APR of payday loans stood at 8.43% in December 2015. In contrast, the interest on credit cards in the deferred payment can reach up to 29% TAE, which will make us pay a large amount of interest for the same requested capital.
|Lender||Capital||Reimbursement period||Average interests||Monthly fee||Generated interests||Total to pay|
|Credit cards||€ 10,000||36 months (3 years)||25%||€ 397||€ 4,313||€ 14,313|
|payday loans||€ 10,000||36 months (3 years)||8.43%||€ 315||€ 1,352||€ 11,352|
As we can see, request financing with the same conditions of requested capital and repayment term, the generated interest can vary almost € 3,000. All this without taking into account that credit cards allow us to continue using every month more money on credit, increasing our debt without hardly noticing.
The best way to use credit cards
Credit cards have their advantages when we use them in the right way. This type of financing is perfect for extra expenses that may arise at specific times. With the monthly deferred payment we will reimburse the capital on credit used at the beginning of the following month without paying interest, that is, at 0% APR. In this way, if we use € 300 in mid-February and reimburse it in a single payment at the beginning of March, we will only pay € 300. Some credit cards even allow us to finance our purchases at 0% for longer:
|New Barclaycard Visa||26.70%||
With the cards we can also choose to pay by installments. This option is very comfortable for more capital expenditures, but we can repay in less time to payday loans. For example, if we spend € 900 to redecorate our house or to buy an appliance, we can return it in 3 monthly installments of € 319 each and we will pay € 56 in interest.
In conclusion, before using one type of financing or another, we must analyze what kind of expenses we want to finance and what is the best way to do it. To finance large projects, the option with which we will pay less interest will be with payday loans and for small extra expenses the cheapest option will be credit cards.