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Payday loans are short-term loans that have become popular because of the rapidity and ease with which they can be obtained. These loans have to be paid on payday and often carry high interest rates and other fees. Thus, some people have criticized payday loans for being very costly, particularly for the low income groups who are the common clients of these loans. But how do these loans compare with other credit products?

Payday loans versus credit cards

Credit cards have the advantage of being interest-free if you completely pay what you charge within a certain time period. And even if you chose to pay the minimum amount and you incurred interest charges, a payday loan is still much more expensive compared to the interests that have to be paid for the credit card use. However, the advantage of the payday loan over the credit card is that it is available even for persons who have bad credit.

Payday loans versus cash advance

The cash advance is an option that is available to credit card holders. As long as the cash advance limit is not exceeded, the ATM machine can provide you with cash instantly when you need it. Thus, this option is better than a payday loan that requires a day to be processed. However, the card holder will have to pay for the convenience of the cash advance because this will have higher interests and finance charges. Nevertheless, this option may still be better than a payday loan that has higher charges.

Payday loans versus personal loans

Personal loans are unsecured loans offered by banks and other lending institutions and usually have a term of one to six years. These have lower interest rates than payday loans and much larger amounts are also available. However, personal loans require a good credit score to qualify for them. Once again, payday loans appear to be the option of those with poor credit scores.

Payday loans as a last resort

It is therefore evident that payday loans should be the last resort because they have the highest interest rates and charges. A person can choose payday loans only after exhausting all other options of raising the required funds, including other credit products and loans from friends and family.

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