When unexpected expenses hit, Tennessee residents often look for fast ways to cover costs they didn’t plan for. Two common options are payday loans and revolving credit. While both provide access to emergency cash, they work very differently and serve different financial needs.

Understanding the difference between a payday loan and revolving credit can help you choose the option that fits your situation without creating unnecessary stress later. Below, we break down how each works, when one may be better than the other, and what to consider before applying.

What’s the Difference Between Payday Loans and Revolving Credit?

A payday loan is a short-term cash advance that you repay with your next paycheck. Revolving credit, often offered as a line of credit, allows you to borrow, repay, and borrow again up to an approved limit.

Payday loans are typically used for smaller, short-term emergencies, while revolving credit works better for ongoing or higher-cost expenses.

Learn more about payday loans vs revolving credit below:

1. What Is A Payday Loan?

A payday loan, otherwise known as a payday advance, is an unsecured loan that lets you borrow money from a future paycheck. Those with current income can use a recent pay stub to establish how much they make to borrow money through a Tennessee payday loan. 

You can receive up to $400 from a payday loan, with your income level having a major influence over your loan amount. In most cases, borrowers will borrow the money, pay for their expenses, and repay the cash advance in full with their next paycheck. Because payday loans are repaid quickly, they’re often used for one-time emergencies rather than ongoing financial needs.

The following are the required items needed to get approved for a payday advance in Tennessee:

• A state-issued ID that displays your full name, age, and photo
• Your most recent pay stub to verify your income
• A blank check from an active checking account in your name

If you want a deeper look at how short-term cash advance options work, this guide on the ins and outs of cash advance loans can help clarify what to expec

2. What Is Revolving Credit?

Revolving credit is often chosen by borrowers who need flexibility rather than a one-time payout. Tennessee Title Loans, Inc. offers revolving credit in the form of our line of credit loans, also known as flex loans. They allow you to set a credit limit and use it to cover financial emergencies. You can continue to use a flex loan as long as you don’t exceed your credit limit and continue to repay what you spend.

Line of credit loans in Tennessee let you borrow up to $4,000. Here’s an example of how revolving credit works: let’s say you set your credit limit as $1,000 to afford replacing a window in your house. You spend $800 on the window replacement. After you repay the $800, you experience a flat tire. You can now use up to $1,000 to replace your tire. Flex loans work similarly to credit cards.

The following are the required items for revolving credit:

• Your driver’s license or state-issued ID to verify your identity and age
• Your most recent pay stub to establish that you have income
• A lien-free car title in your name
• Your vehicle for a quick inspection

Revolving Credit Limits And Usage

Revolving credit affects your credit score mainly through payment history and credit utilization. Using it responsibly can help build credit, while overuse may have the opposite effect.

The limit on your revolving credit account will vary depending on your income and creditworthiness. If you earn more and have a higher-than-average credit score, you are more likely to gain approval for a higher credit limit.

You may have already used a revolving credit product without even realizing it! Credit cards, personal lines of credit, and home equity lines of credit are all types of revolving credit. 

How Does Revolving Credit Affect Your Credit Score? 

Have you asked yourself, “How does revolving credit affect your credit score?” It mostly affects your credit score through credit utilization and payment history.

Revolving credit can be fantastic for lengthening your credit history. Since they are continuous, they'll appear on your credit reports as long as you keep them open. As long as you continue to make payments, you can establish a positive payment history to improve your credit score.

Your credit utilization can also positively or negatively impact your score. Typically shown as a percentage, the credit utilization ratio is the amount of credit you're using divided by your total credit balance. Lenders like to see you using no more than 30% of your available revolving balance. Spending your line of credit responsibly can positively influence your credit utilization ratio.

Payday Loans Vs Credit Card

With a payday loan, you borrow money that goes directly into your bank account. Credit cards work differently, as they are a credit line. You spend money against your credit line when you don’t have the money in your bank account.

When considering payday loans vs a credit card, it’s also important to remember interest rates. Some credit cards have interest-free grace periods that let you spend money without accruing interest. You will eventually accrue interest, just not right away. With payday loans, you will pay interest right away.

Repayment is also vastly different. Payday loans normally require you to repay them with your next paycheck. Credit cards can be more flexible, as you can get on a monthly repayment schedule and pay fixed payments. While that flexibility may seem better, payday loan repayment may be better for those looking to repay their loan as quickly as possible.

What Are The Differences Between Payday Loans And Revolving Credit?

While both options provide emergency funds, they are built for very different financial situations. What should you choose when considering payday loans vs revolving credit? Both offer unique advantages that can work for different situations. You will have to assess what you need to determine which financing option can help you best.

The following are some of the differences between payday loans and revolving credit:

• Loan amounts: Payday loans allow borrowers to borrow up to $400, whereas Tennessee residents can get up to $4,000 from revolving credit. This makes payday loans better for smaller, short-term emergencies, and flex loans better for long-term, high-cost emergencies.
• Collateral requirements: Payday loans do not require borrowers to have any collateral because they are unsecured. Some line of credit loans may require collateral. We also require borrowers to have a lien-free car title, which you do not need for a payday loan.
• Credit impact: Getting a line of credit loan will affect your credit score. As long as you handle it responsibly, it can have a positive impact, but there are downsides that can lead to worse credit. Payday loans will not have a credit impact, as we do not report these loans to the major credit bureaus.
• Repayment: With payday loans, you borrow the money and repay it with your next paycheck. That’s the end of the loan, and you move on with your life. Revolving credit lets you pay the money you spend back slowly and continue to spend after you pay it back.

Apply For Payday Loans And Revolving Credit In Tennessee – Borrow Money The Same Day You Apply

Choosing between payday loans and revolving credit depends on how much money you need, how quickly you can repay it, and whether flexibility matters to you.

Tennessee Title Loans, Inc. offers both options to help residents handle unexpected expenses without unnecessary delays. You can start the process online and speak with a local representative to decide which solution fits your needs.

Note: The content provided in this article is only for informational purposes, and you should contact your financial advisor about your specific financial situation.