Payday loans vs credit lines: What suits you best in 2021

The world today is divided into two sections, a pre-Covid-19 world and a post-Covid-19 world.

With the changing times, everything we know of has changed drastically, whether it is our personal life, our professional sphere, or our tendency to dress up appropriately. We might have had to form greater bonds with our bed and couch on which we all attend our meetings, but now let’s think of something slightly less interesting but significant, especially in times like these; the never-ending dichotomy of payday loans vs credit lines. You can apply for Payday loans from lenders here and at a good annual percentage rate.

What are payday loans?

Let us first give some textbook definitions for people who are new to this. Payday loans are loans that you take on a short-term basis, which are to be repaid on the next payday that you have. They are contingent on your income, which means you can get a loan that falls under the amount of money you already earn and hence can be seen as a kind of advance payment. However, they come with a high-interest rate usually. On the other hand, we have credit lines in which you can pay back the money you borrowed within instalments. It is usually an unsecured form of loan in which you do not give any collateral in case you fail to pay the amount, and it also comes with a very high rate of interest.

Loans in 2021

Now let us place the payday loans and credit lines within the context of 2021. With the onset of the pandemic, there was a sufficient loss of jobs and a decrease in economic growth globally. As opposed to that, 2021 has generally been an economically sound year. Due to a sense of familiarity that is now created with the more digital nature of life we live right now, more job opportunities are coming up, and people can somewhat make up for the losses they faced last year. This means that there is slightly greater stability now, as opposed to the past. But does that mean people have an increased ability to pay back what they took in a short time frame, with very high interest? Now, let’s not get ahead of ourselves. Looking at payday loans, it is crucial to understand that you need to pay back what you took with the next pay you get. Combined with the high rate of interest, this can be quite a burden. For example, a man in Sheffield from a middle-income background, already crumbling under the pressure of the pandemic, had to pay back the debt with his next income, trapping him in a cycle where he could not use his money on doing things he needed to do because of the immediate need to pay it back before he could earn the same amount himself. The credit lines, on the contrary, do not need to be immediately paid back. Even though the economic strata might be more comparatively stable and stronger now, it is still notable that many individuals lost their jobs last year and suffered a lot of economic losses due to the unstable conditions back then.

Problems with payday loans

Now, even if we take a best-case scenario and consider a stable environment, we still have to note that the last year’s losses need to be made up for, and there is a probability of need to cater to the various conditions which were left ignored during the previous year. This means that a short-term loan plan is likely to cause problems because you still need to cater to other things before they need to pay back that loan with a very high interest rate and end up cancelling out the benefit you got in the first place. On the other hand, with a credit line, the interest may still be very high, but you can pay in small instalments, which means there exists an ability to utilise the loan you got in the best possible way and to reap enough before you pay back, so you don’t have to take another loan to pay back the loan.

Problem with credit lines

However, a problem exists with credit lines too. Considering that credit lines can be open-ended, and you can constantly renew the amount of money you want, can lead you to a debt spiral where you end up continually renewing, creating an increase in debt. In 2021, this can be specifically harmful because you already need to put the past in the past, whereas a need to strive for better can entrap you into this never-ending cycle. However, credit lines still take over paydays because for one other reason. On a payday, you draw an amount, and you pay interest over all of it. On the contrary, you can list an amount you wish to draw in a credit line that would be accessible to you at all points, but you don’t pay the interest over all of it as far as you don’t draw it out. Let us take a hypothetical situation. John got a new job after he lost his old one, due to which he had not been able to cater to many requirements at home. His ceiling is breaking down, and for that, he needs to renew it. If John takes 3000 pounds in a payday loan with an interest rate of 4000 pounds, he will have to pay all of that amount from his next pay, regardless of how much of it he used. So if the ceiling was repaired for 2000 pounds, he is still paying the extra 1000 pounds in interest because he had to withdraw all that money beforehand, and the interest is fixed. A credit line is slightly more flexible, so let’s say he registers the amount he needs as 3000 Pounds while applying for the amount but ends up using 2000 pounds. He now only needs to pay the interest on those 2000 Pounds, which is better than a payday loan.

Similarly, you don’t have to borrow all the money you listed immediately. You can always carefully plan through the intervals in which you need to take the money out, whether to sustain a business, pay for your child’s fees, or renew a home. In the meantime, you can make sure that you utilise the prevalent opportunities in 2021 not to get stuck in a debt spiral and can gradually pay back what you took.

Summary

Online lending websites have made payday loans more transparent and easy to apply than they have been before in comparison to credit lines. This is convenient for people as they are only a few clicks away from getting a short-term loan which may not have been easy for them otherwise. There are plenty of payday lenders online who are willing to give you good quotes for loans and offer them for free. These online payday websites have online reviews to help you decide if you want to keep looking for better quotes and payday loans have flexibility in the range of how much loan can be taken. Payday loans are good if you are not looking for long-term solutions as they are not intended for that purpose.