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A payday loan has its benefits and may sound like the ideal solution to your cash problems. However, ensure that you also carefully consider other options. You may have another way to settle your financial issues without taking on payday loan debt. A cash advance is an alternative form of credit to a payday loan. Here, we run through everything you need to know to decide whether a cash advance or payday loan is right for you. 

What is a cash advance?

cash advance is a short-term cash loan offered by your credit card issuer. When you take out a cash advance, the money is borrowed against your card’s line of credit.

What is a payday loan?

A payday loan is a short-term, high-cost loan that is typically due on your next payday. Payday loans have few requirements and can be borrowed online or in-store.

What are the differences between a cash advance and a payday loan?

Cash advances and payday loans appear similar but do differ in several ways.  

How Much You Can Borrow

Cash advance 

The amount you can borrow through a cash advance depends on your credit limit. It is a percentage of your credit card’s limit and usually comes to a few hundred dollars. It is common to have a maximum daily cash advance limit of less than $500. 

Payday loan

You can typically borrow from $100 to $1,000 with a payday loan. However, states have different laws on payday lending, limiting loan sizes to protect borrowers. Payday loans are known for trapping consumers in a cycle of debt. Because of this, most state governments have set limits of $100 to $1,000 but this may differ depending on where you live.

The Repayment Terms

Cash advance

A cash advance can provide extended credit, as you can choose to continue to carry the debt long-term. However, unlike purchases made on a credit card, interest on a cash advance starts building immediately. Therefore, it is best to pay it back as soon as possible. 

Payday loan

With a payday loan, you are required to pay back the money more quickly, often within two weeks. Payday loans are designed to keep you going until your next payday. However, some lenders do provide more flexible repayment plans. Similarly, a payday loan begins gathering interest immediately.

The Interest Rates

Cash advance

A cash advance has an average of 24% APR. However, this does not take into account additional fees. Borrowers must pay an upfront fee for a cash advance – usually around $10 or 5% of the amount you take out. You then pay interest on your advance at approximately 24% APR. 

Payday loan

While the interest rate for a cash advance is much higher than a credit card, the interest rate on a payday loan is sky-high. The APR for payday loans comes in triple digits, often more than 400%. Take a look at our guide: Why Is The APR For Payday Loans So High?

The Requirements

Cash advance

In order to take out a cash advance, you must be approved for a credit card that allows them. Credit companies do background checks on your financial history to make sure that you are a responsible borrower. To be approved, you may need to have a good credit score. 

Payday loan

To get a payday loan, you need to be over 18, have a steady income, have a bank account and an ID. However, payday lenders tend to still offer loans to people with poor credit. As a result, payday loans are typically easier to get than cash advances.

You may be able to avoid getting into debt! See if either of the following options could help you deal with your financial trouble.  

Ask for more time

Your landlord may be able to give you some extra time to find the rent this month – it’s always worth asking! If you are struggling with debt from another loan, speak to the creditor. They may be able to arrange a new repayment plan that you can afford.  

Sell unwanted things

You may want to consider selling unneeded items before turning to high-interest, short-term loans. By selling things online, you can turn unwanted items into quick cash. Most people have a number of unused items stored away, which can add up to a good value. Selling items on eBay and Craigslist or having a yard sale can help you gather some money without the dangers of getting into debt and accruing interest.