Payday Loan vs Credit Card: Which Costs Less for a Short Gap?

Both can bridge a gap until payday. They behave differently, and the cheaper one depends on how long you carry the balance.

Here is a side-by-side look at a payday loan vs credit card for the same R2,000, with the working in rand.

Payday loan vs credit card: how do they compare?

Payday loan vs credit card: what does R2,000 cost on each?

This is a hypothetical example for one month. The card figures use assumed rates. Replace them with your own card’s rate and fees.

The payday loan figure is a calculation from the National Credit Regulator’s caps: interest R100, initiation fee R265, service fee R60 and VAT on the fees R48.75. It is not a quote.

Use the card for the purchase, not cash. Cash withdrawals usually get no interest-free period and carry a fee.

When does a credit card cost more?

If you carry a balance for many months, interest accumulates, and you may pay more than you would on a short loan. If you pay only the minimum, the balance can last years.

Be honest about how long you will take to clear it. Our guide to interest rates shows how a rate turns into rand.

When does a payday loan beat a credit card?

• You do not have a card, or the limit is used up.
• You can repay on payday.
• The need is a real emergency. See emergency loans.

What should you check either way?

• Total cost in rand. See the guide to the pre-agreement quote.
• The repayment date. Is it after payday?
• Affordability. See loan affordability.
• Registration of the lender. Check the NCR register.

What are cheaper options than a payday loan vs credit card choice?

Ask the creditor for time. Ask your employer for an advance. See salary advances. Ask a stokvel or family.

How do you avoid the debt trap?

Do not use one to pay the other. See multiple loans. If you are already struggling, see what to do when you cannot pay your debts.

What does a card cost if you repay it slowly?

The card’s strength, flexible repayment, is also its trap. Here is R2,000 on a card at an assumed 2% interest a month, roughly 27% a year. Replace the rate with your own card’s. The numbers show how the repayment speed changes the cost.

At R500 a month, the card still costs far less than the R474 that a payday loan can cost for one month. At R100 a month, the card costs more than the loan in the end, and the debt lasts over two years.

In a payday loan vs credit card choice, the speed of repayment matters as much as the product.

How do you use a card well for a short gap?

If you already have a card with an available limit, four habits keep the cost low:

1. Use it for purchases, not cash. Cash withdrawals usually have no interest-free period and carry a fee.
2. Check how many interest-free days you get. This depends on your card and your statement date, so read your terms.
3. Make a repayment plan on the day you use it. Write the amount and date, for example R1,000 on the 25th and R1,000 on the 25th of next month.
4. Pay more than the minimum. The minimum is designed to keep the debt going.

If you cannot answer the second and third points, treat the card like the payday loan it can become.

How do you decide in five questions?

Work through these in order:

1. Can the bill wait until payday? If yes, wait.
2. Can the creditor, your employer or family give you time or an advance?
3. Do you have a card with enough limit, and can the shop or provider take card payment?
4. Can you repay the full amount within one or two months?
5. If the answer to 3 or 4 is no, compare quotes from registered lenders, and borrow the smallest amount you need.

If you reach question 5, a payday loan vs credit card is no longer the choice. The choice is between a lender’s quote and doing without. See emergency loans for what else to try.

What mistakes do people make when choosing between the two?

• Taking a cash advance from the card, then being surprised by the cost.
• Paying the minimum and forgetting the balance.
• Using a payday loan to clear the card, then using the card again. See multiple loans.
• Ignoring the due date, which brings fees and can hurt your record.

If you notice any of these, pause and look at the whole budget before you borrow again. A small, planned buffer is cheaper than either tool. See emergency fund.

What if neither side of the payday loan vs credit card choice is available?

Not everyone has a card with room on it, or a lender that will approve them. If you are in that position, try these first:

• Ask the shop or provider for a payment plan or layby. Many prefer instalments to no sale.
• Ask the creditor for a few days, or to split the payment.
• Sell something you no longer use.
• Ask a family member for a short, written loan.

Check the total cost of each before you decide. A plan that costs nothing beats any product, and the payday loan vs credit card question only matters when you really have to borrow.

Related guide: Quick loans in South Africa: what they cost and how to read the quote.

Frequently asked questions