Should I use a Payday Loan instead of a bad credit loan

When you have bad credit, and you need money right away for some type of emergency expense, the options are very limited.

Ignoring secured loans for a moment, you may be tempted to use either a bad credit loan (a loan with a very high interest rate in order to make up for your bad credit risk) or a payday loan (a loan that lasts approximately one month that provides you with any amount of money up to your monthly paycheck).


You may be wondering which of those two loan types are better. For that to be answered, let's look at the benefits and weaknesses of both loan types below:

- Bad Credit Loan


Bad credit loans are available to anyone regardless of credit. They can give you an amount that you pay off monthly (rather than immediately) and you can get far more than a payday loan if you need it.


Interest rates are incredibly high. It is much harder to find a reputable bad credit company unless you find someone to help. Some of these companies charge some obscene fees in order to simply get the loan in the first place.

- Payday Loan

Available right away. Credit does not matter at all. Gets paid back immediately (no outstanding debt). Not likely to affect your credit score . You can get smaller loans for only some immediate small financial need.

If bad credit loan interest rates are "incredibly high" then payday loan are ridiculous. They have an equivalent interest rate that is 5 times in interest rate of bad credit loans, but it is more difficult to notice because you only pay it off once. Payday loans are also a self fulfilling cycle - when you take one loan you pay a high fee that makes it harder to afford things the next month requiring another payday loan and a high fee.

Comparing the Two
Overall, the bad credit loan fees harder to handle than the payday loan. However, the payday loan carries far more "interest" (a high fee that is taken directly out of the money you are paying that is more than you would pay in interest on bad credit loans), once you use one it is far more likely that you will need another one and you have to pay back the entire loan at once rather than over time, which brings equal financial stress.

Overall, a bad credit loan is better than a payday loan. But ideally you would keep your credit score high and not have to get either.

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