There are many types of loans that we can choose from but if you want a relatively small amount of money then you may decide that you can get it either with a credit card or a payday loan. It is important to make the right choice as it can have a big impact on many things including how much the loan will cost you. There are very big differences between the two loan types and it is important to understand more about them so that you know which will suit you the best.

Credit Cards

Many people will be familiar with how a credit card works. You will apply for a card and then when it arrives you will be told how much you can spend on it. You will then be able to use it in most shops and for online purchases. After four to six weeks you will be sent a statement which will show how much you have spent on the cards and therefore how much you are expected to repay and when you need to pay it by. You will have repayment options, where you can repay the full amount that you spent on the card and pay no fees at all. You can repay just a small minimum amount which will include interest on the unpaid balance. Alternatively, you can pay a figure in between these two. The interest rates on a credit card can be fairly high compared to some other types of loan. They are popular for many reasons including the flexibility with repayments. With a credit card you can just choose to repay a very small amount and it means that you can spread the repayments over a very long period of time and therefore it is a lot easier to repay the debt. However, you will be paying interest all of the time that you owe money and this can be quite high. How much interest you end up paying will depend on how long you take to repay the card. This means that it can be hard to say how expensive the card will actually be. If you repay it all in full then it will be free and obviously cheaper but if you take the maximum time to repay it, then it could be more expensive than a payday loan.

Payday Loans

A payday loan can be arranged very quickly, sometimes within a few hours and you will get the money paid into your bank account. You will then have to set up a direct debit to repay the amount your borrowed, plus the costs, in full on your next payday. The loan does not hang around for long but you do have repay it all in one go which can be difficult for some people. There is no credit check for applicant which means that anyone can apply but this can mean that they are pricey because of the risk that the lender is taking. You also have to pay all the admin fees within that one lump sum payment; something which is normally spread out across many repayments and it can seem very expensive because of this. You can easily find out how much the payday loan will cost you before taking it out by using the calculator on the lender’s website. This is a good idea as it will allow you to see what is expected of you with regards to that lump sum repayment and you will be able to think hard about whether this is a good idea for you.

Costs

So as you can see it is not just the costs that are a factor when you are deciding between loans and it is not always that easy to work out what the costs will be. Even with a payday loan, although the costs are clear, if you struggle to repay it then the costs will be even higher and how much higher will depend on how long it takes you to clear the debt. It might be worth considering how well you will cope with repaying each of the different loans in order to decide which one will be the cheapest for you. If you know that if you have a credit card you will max it out and then only repay the minimum then it is likely that will be a very expensive option for you. However, if you feel your will struggle to make the payday loan repayment then this may rule out this option. In order to work it out, you may need to sit down with your bank statements and calculate how much money you normally have available and see what you can actually afford. You may be able to identify some ways to cut down your costs and that could help you to manage.