It is really unbelievable how popular payday loan stores have become. With interest rates rolling along in the 150% to 300% range on an annual basis, it is enough to make a loan shark blush. Yes, the risk for the payday loan establishment is high, but stories abound of people who have borrowed a $100 and repaid $500 or $1,000 in a relatively short time.
Even undesirable credit card terms are better than those on a payday loan.
A high interest rate on a credit card is less than 35% annually. Even if you have late fees, it is unlikely you will ever see the type of inflated repayment costs associated with payday loans. Credit cards may have their problems, but they are extremely kind compared with the payday loan industry.
Credit cards give more flexibility and convenience.
Once you have a credit card, it can be used virtually any place that you shop. Unlike a payday loan which requires you to have to carry your borrowed money in your pocket, a credit card does not lend you the money until you spend it. At that time, a credit card company lends you no more than you are spending on that purchase. You pay interest only on the funds you have borrowed not on the funds that are available to you.
A payday loan requires you to borrow every cent that you expect to spend all at once.
This means that you may borrow $100 or $200 when you really only need to spend $50. Because you have to ask for the money each time that you need a loan, the payday loan store encourages you to borrow everything you may or may not need for the week or month all at once. So, you pay interest on money that you may never spend. Even if you give the surplus back, you will still pay interest on it.
Payday loans require visiting the loan store continually.
With a credit card, you sort of carry your loan company around with you. When you get a payday loan, you have to physically go to the store to get your money. Every new amount borrowed requires another round of qualifying.
If you lose your credit card, you still have the money in your credit line.
It is easy to lose cash. Everyone has lost a few dollars a time or two. If you borrow a $100 as a payday loan, you risk losing all or part of it before you get it spent. With a credit card, the money is in your credit line and not in your pocket as cash. If you lose your credit card, you keep your money. If you lose your payday loan, you are down the amount of the loan that was still in your pocket. And, you have to repay it.