Credit cards and same-day loans are two of the main sources of borrowing available to Americans. Since they help customers achieve the same goal, they have a lot of things in common.
For example, they both can be used to pay for unexpected expenses that are not higher than $1,000 in amount – plus, when you take out one of these sources of financing, it is possible to use finances on the same day of your approval. Best of all, you can use it when you want and how you want.
However, based on the amount of money you use, they both charge interest and require repayment over a short time period – typically between two and four weeks. But that is about where the similarities end and the sharp differences begin.
Of course, it is essential to understand how each type of financing works when deciding which is right for you. By doing so, you may save money on APRs and prevent debts from adding to the pile.
What’s the Difference?
Even though each of them may help you get the same financial goal Filld, they function quite differently. For instance, credit cards are a revolving line of credit, while same-day loans are paid out in one lump sum with fixed monthly installments. That’s the first difference, and here are six more.
While same-day loans usually come as one lump sum and are repaid at a date agreed upon by your state and lending provider, credit cards are capped to a specific set limit with monthly installments.
Revolving credits allow you to repeatedly borrow money up to a credit limit, which a lending provider sets based on your credit report, income source, and other eligibility criteria. With same-day loans, on the other hand, you may have the advantage of lower APRs and the flexibility to choose the loan’s offer that fits your budget.
The average credit card rate in the U.S. charges about 18% interest as of the fourth quarter of 2022, according to Federal Reserve data. But most entry-level credit cards charge can reach an APR of 25% or more. So, it can be an emergency expense if you are not able to pay off the debt quickly.
Meanwhile, the average same-day loan can charge three-digit numbers in interest, which are around 400%. That’s why it is crucial to prioritize paying off higher interest loans first to save money on extra costs.
How Much You Pay
A credit card allows you to use funds only when you make a purchase on the card, so the interest counts from the moment you use your card. If you don’t swipe your card for any purchase, you will never pay interest on the credit line. With a same-day loan, however, all the money is available to you on the first day after you are approved. Slowly but surely, the interest incurs over the entire life of the loan.
As we mentioned above, same-day loans come with predictable payments and a definite due date, which can make it easier to manage and plan a budget.
When it comes to credit cards, they will offer a grace period or credit card float. This is a period of 0% APR that starts from the day you use your card for the first time until your next credit card purchase. It can be as long as thirty days when you will pay zero-cost interest on your purchase. Thus, being careful about timing your credit card statements may help you save money on interest costs.
Same-day online loans are considered unsecured short-term types of financing that require no minimum credit score and hard inquiries. Most of the time, it is enough to:
- be at least 18 years old;
- be a U.S. citizen;
- have a regular income;
- be officially employed;
- have the capacity to cover a debt.
So, it will not be difficult to qualify for quick loans even for bad credit applicants.
Having a credit card, however, requires a good credit history. Even cards with 0% APRs that can only offer you a low credit limit will not be available to someone who has a FICO score under 590 or no credit history.
Ability to Build Credit
Credit cards may help build your score if you are careful about your repayment plan over time. Lending providers, however, typically don’t send to the credit reporting agencies. So, same-day loans will, therefore, not affect your credit report and financial history. But they will report missed payments, which on either a credit card or same-day loan could damage your credit.
Which is Right for You?
To decide which type of financing is best for you, dig into the details of each offer available. Gather information such as the APRs, yearly charges on credit cards, and potential fees on same-day loans. All things considered, calculate your total cost of borrowing.
A same-day loan may be best for you if you’re taking out a short-term loan, you need quick cash, you want the stability of a fixed monthly installment, or you have a poor credit score.
On the other hand, a credit card might be a good idea if you are planning to use the money for purchases, you want to have less interest rates, or repay the principal during your grace period.