Borrowing a Payday Loan v/s Borrowing from a Line of Credit v/s Cash Advance on a Credit Card
Payday loans are much more expensive to
borrow than borrowing from say a line of credit at your
bank or cash advance on a credit card. Have you ever wondered
what the difference between these 3 items is? Which one
is the cheapest option, and which one is the most expensive?
We will compare the total costs of borrowing from each of
these 3 sources.
Say you borrow $500 from each of these
sources of financing. Here's how the results compare:
Card Cash Advance
from a line of credit
Total Cost of Borrowing
Cost of Loan in % **
** The Cost of Loan in % format is calculated
Dividing 52 weeks of the year by 2 =
26 weeks x $75 = $1950
$1950 / $500 = 390%
Here's how you compare these sources of financing
As you can conjecture from the graph above,
borrowing from a line of credit is the cheapest option ($2.60)
with bank overdraft protection coming in 2nd at ($3.52).
Cash advance from a credit card is 3rd with ($6.00) while
payday loans are the most expensive to borrow, at a whopping