Payday and Pawn Loans
The discrepancies, however, are significant. The cash cost for everyone who qualifies for a line of credit will be far lower than the cost of a payday or pawn loan. Similarly, the credit evaluation process for a payday or pawn loan is more straightforward and less demanding (there may be no credit check at all), and you get your funds much, much faster. On the other hand, payday lenders and pawnbrokers rarely offer large sums of money that are frequently accepted in credit lines. On the other hand, banks rarely bother with credit lines as tiny as the usual payday or pawn loan.
The Bottom Line
Lines of credit, like any other financial product, are neither necessarily good nor inherently harmful. It all depends on how people use them. On the one hand, excessive borrowing against a line of credit can bring you into financial difficulty just as quickly as excessive credit card spending. On the other hand, lines of credit might be cost-effective solutions to month-to-month economic fluctuations or completing a complex transaction such as a wedding or house remodeling. Like with any loan, Borrowers should read the terms carefully (especially the fees, interest rate, and repayment schedule), shop around, and don’t be hesitant to ask lots of questions before signing.
