Payday Loans vs Line of Credit

by | Dec 7, 2020 | Borrowing Tips | 0 comments

Managing your finances has never been easier, thanks to the variety of options out there today. However, it can take a little research, to find out which of those options are best for your circumstances. Depending on how much money you need, when, and for how long, certain choices may make more sense for you. You may wish to take out a loan, or perhaps apply for a line of credit, and while these two things may have some similarities, the way they operate is quite different.

When you are up against unforeseen expenses, it’s okay to need a helping hand in the form of loans or credit. However, if you wish to make the most out of your money, it’s important to research which options are best for your goals. If you are considering a payday loan or a personal line of credit, here’s what you need to know about each:

Payday Loans

If you only need a small amount of money, and can pay it back quickly, a payday loan may be a good choice. These are short-term, higher-interest loans that are designed to get you through to your next paycheck. Usually for amounts less than $1000, which you pay back within a few weeks, payday loans are best for small, unforeseen bills or minor emergencies. 

When you need cash fast, but don’t have great credit, this can be a viable option. They usually don’t involve a credit check, but simply a verification of income and identity. Payday loans are best for one-time needs of fixed amounts, when you have financial needs that can’t wait until your next paycheck. 

Payday loans, and fixed-amount loans in general are quite different from lines of credit, so let’s explore those next:

Personal Line of Credit

A line of credit is designed to offer financing for unspecified amounts of money, for longer periods of time. This is a great choice when you know you’re going to need money for a while, but you’re not sure how much, like if you’re remodeling your home or planning your wedding. A line of credit gives you access to funds for a certain amount of time (known as the “draw period”), up to your credit limit as specified by your lender.

Accessing a credit line does have higher requirements than a payday loan. You’ll need to have decent to good credit, and a verifiable income, and you’ll be subject to paying interest, just like you would on a credit card. However, if you’re able to secure a line of credit, you’ll have the freedom to handle ongoing expenses, without worry.

Both payday loans and lines of credit are useful ways to get the funds you need to manage your life. However, they are quite different in the amounts of money available, how they’re repaid, and the types of requirements needed. Chat with a local lender today, to see which would be best for your situation.