The Difference Between Payday Loans and Cash Advance

If you are looking for short-term loans online you must have at one point or another come across the term payday loans and cash advance. These two terms are sometimes used interchangeably but there are some differences between them. In this article, we will look at some of these differences and similarities between payday loans and cash advances.

Payday Loans

Payday loans are loans that are due for repayment in a borrower’s next paycheck. They are also known as payday advances, payroll advances, faxless payday loans, no credit check payday advances and more. Payday loans are usually available in small amounts up to $1500 and have APRs ranging from 390% to 780%. You don’t need to have good credit ratings to qualify for these loans. Lenders are available both in-store and online.

Cash Advances

Cash advance is a short-term cash loan that is taken out of your line of credit or credit card. Many times you can find credit cards that can cater to your needs no matter your credit rating. The loan amounts you will receive here depend on your credit limit and usually, the rates are higher than a standard credit card.

Differences Between Payday Loans and Cash Advance

  • How Much Can You Borrow?

It is very easy for borrowers to get trapped in heavy debt with payday loans. This is why many state governments have stepped in to limit the amount you can borrow through a payday loan. Typically, this usually ranges from $100 to $1500 depending on the state of residence. With a cash advance, the amount an individual can borrow is limited to a percentage of the limit on your credit card. This is usually a few hundred dollars. Mostly, these credit cards have a daily, weekly, and monthly cash advance limits.

  • Repayment Terms

A credit card cash advance will typically start accruing interest immediately unlike credit card purchases. This means there is no interest grace period like normal purchases. Similarly, interest is immediately accrued with a payday loan. The only difference here is the repayment time. Some lenders will require repayment on your next payday while others are more flexible with their repayment dates. A cash advance allows you to carry a debt long-term if you wish.

  • Interest Rates

Cash advance would usually require an upfront fee of $10 or 5% of the amount you take out. The interest on the cash advance is usually around 24% APR. For payday loans, you are charged an upfront fee based on what you desire to borrow. It is usually $15 to $30 per $100 that you borrow. The APR is typically about 400% and up since the repayment window is around 2 weeks. The major difference here is that with a cash advance you can repay the credit back accruing little interest but with a payday loan, it doesn’t matter when you will still pay the same amount.

Which is the Better Option?

If you have decided that a short-term loan is what can solve your cash problem, your choice between a payday loan and cash advance will depend on some factors; factors such as the amount you intend to borrow and how soon you are likely to pay back the loan.