To Credit, Or Not To Credit: The 5 Differences Between a Cash Advance and a Payday Loan

What if you could get out of a financial bind starting today? For the 60% of Americans who get paid for hourly labor according to the Bureau of Labor and Statistics, if you get sick or hurt, you won’t get paid.

Whether it’s an unexpected bill or a major debt, most of us sometimes need more money than we have. And when you need to borrow money, you have a few different options available.

Two of the main options are a cash advance or a payday loan. However, it’s impossible to pick the right option if you don’t know the differences between them.

Before you borrow any money, keep reading to discover the main differences between a cash advance vs payday loan!

What Is a Cash Advance?

Below, we have our breakdown on the key differences between payday loans and cash advances. First, though, we need to define each of these options.

Sometimes, a cash advance is an advance on your next paycheck, and usually need to be paid back within two weeks according to the CFPB. Despite the name, such an advance is really a payday loan (see our explanation below).

A real cash advance is a line of credit that is typically connected to something like an existing credit card. This allows you to borrow money as if you were spending credit and then pay everything back with interest.

If using a cash advance from a credit card, pay close attention to things like the advance limit and the interest rate. This is important because cash advances may have a higher interest rate than usual card purchases.

What Is a Payday Loan?

Payday loans are completely separate from any kind of credit card. Instead, you apply for such a loan through a specialized payday lender.

There is typically no credit requirement for a payday loan online. You borrow a fixed amount of money and are typically required to pay the amount back within a short period of time (more on this in a minute).

Payday loans can be an attractive option for those with poor credit. But those with good credit should fully understand how each option works before they begin to borrow money.

1. Differences in Basic Requirements

Now you know more about the basics of cash advances and payday loans no credit check. Here is a quick review of the basic requirements for each.

Cash advances are based on credit. If you are not getting an advance from an existing credit card, you may need to submit an application that will evaluate your credit score. Based on that score, you may or may not be approved.

Payday loans do not usually require a good credit score. However, you must be able to prove that you have steady employment. This is why they are “payday” loans: you pay them back once your payday comes around.

In each case, you may need to provide an ID and bank account number so they know where to deposit your money.

2. Take It to the Limit

If you’re trying to figure out which way of getting money is better for you, you may need to start with a simple question. How much money do you need?

You can typically get more money with a cash advance. Because the amount you can borrow is tied to your credit score, those with a high score can get quite a bit of money at one time.

With a payday loan, the amount of money you can borrow is fixed. These amounts are typically no more than $1,500, and some are as cheap as $100.

This goes back to the “payday” nature of such a no credit check loan. They don’t want you to borrow more than you can pay back in a short amount of time!

3. Differences in Interest

Many people are understandably wary of borrowing money. This is because the interest rate can turn the amount you borrow into an unexpectedly larger amount that you pay back.

Generally speaking, a cash advance is going to have a lower interest rate than a payday loan, but not as low as an installment loan. Depending on your credit, a cash advance interest rate will generally be 24% or less.

Payday loans have a much higher interest rate, with APRs from 391% – 521%!

Of course, that makes payday loans sound much scarier than they really are. To understand how APR works in this context, you need to understand the difference in fee structures between your two options.

4. Fee Structure

With a cash advance, you generally pay between 3% and 5% of the amount you are borrowing as a fee. And that fee is typically a minimum of $10 (and you’ll still be on the hook for mounting interest–more on that in a minute).

With a payday loan, you typically pay a fixed amount per $100 borrowed. For example, you may have to pay a minimum such as $15 for every $100 borrowed.

So, let’s say you are borrowing $1,000. With a 3% cash advance fee, you’ll pay a $30 fee. But with a “$15 per $100 borrowed,” you’ll pay a whopping $150 for a payday loan!

Why so high for a payday loan? With these guaranteed approval loans, you effectively have no interest rate. So the lender wants to get their additional money upfront instead of over a long period of time.

5. Payback: Sooner or Later

So, how quickly do you need to pay back your instant approval payday loan? While it varies from lender to lender, you typically must pay them back within 30 days.

This is why payday loans effectively have no interest rate. Instead, you only have to pay the fee. But if you were to translate that fee into an effective APR, you’d get a high amount (such as the 521% we mentioned earlier).

Meanwhile, a cash advance is like spending on a credit card. If you only pay the minimum amounts, you may end up paying it back over a period of months and years.

So while the fees and APR are much lower for cash advances, your interest may really pile up if you don’t pay everything back as quickly as possible.

Cash Advance vs Payday Loan: The Bottom Line

Now you know the differences of the cash advance vs payday loan. But do you know where to get the money you need?

We offer credit cards and payday loans to get you the money you need. In fact, you can apply for a loan today without even leaving the house! If you’d like to learn more, below are some articles from our blog you might find helpful:

Visa vs Mastercard: What’s the Difference?
5 Tips for Successfully Paying Back an Installment Loan
How to Avoid Credit Card Fraud
Buy Now Pay Later Electronics No Credit Check