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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. Many people in the USA search online for ‘cash advance vs payday loan’ as both these popular types of loans have their benefits and drawbacks, all of which should always be considered before taking out any loan.

Here, we run through everything you need to know to decide whether a cash advance or payday loan is right for you. 

What Are The Differences Between a Cash Advance and a Payday Loan?

Cash advances and payday loans appear similar and are often provided by the same companies, with many online lenders able to provide both cash advance or payday loan options to borrowers across the US. Much like all other short term loans, knowing why and when a cash advance or payday loan is right for you can make a significant difference to your finances and how you are able to deal with financial emergencies whenever they occur.  

How Much Can You Borrow?

Key with any loan is understanding both how much you can borrow as well as over how long you are able to borrow and repay the loan you require. You may also consider whether there are any specific loans which are purpose built to assist you with your specific financial emergency. For example, you may be able to find a loan specifically designed to help you get a $600 loan or perhaps to help you borrow money online instantly when you need money fast in the form of an emergency loan or even something else.

Cash Advances – The amount you can borrow through a cash advance provided by your credit card provider may well depend on your credit limit. It is a percentage of your credit card’s limit and usually equates to a few hundred dollars. It is common to have a maximum daily cash advance limit of less than $500. However, there are also cash advance loan options that are provided by online lenders, which are very similar to a payday loan, but perhaps with different repayment terms (often slightly longer).

Payday Loans – You can typically borrow from $100 to $1,000 with payday loans. However, different states have different laws on payday lending, limiting loan sizes to protect borrowers. Most state governments have set limits of $100 to $1,000 but this may differ depending on where you live. For example, Texas payday loans come with very different laws and regulations attached to them when compared for example to online loans in Ohio or Alabama.

Cash Advance Vs Payday Loans: The Repayment Terms

When it comes to your repayment terms with whichever lender you borrow money with, whether you borrow money in the form of a cash advance or payday loan you will need to think about how long you will have to repay your loan and on top of that, how the repayments will work. For example, a payday loan will likely require borrowers to repay their loan in full, including interest just after their next payday. However, a cash advance option may allow a slightly longer repayment period of for example a few months, with equal repayment amounts over an agreed number of months.

Cash Advance – A cash advance can provide extended credit, as you can choose to continue to carry the debt longer term than some other options, similar to an installment loan arrangement. However, unlike purchases made on a credit card, interest on a cash advance starts building immediately and will be in the form of compounded interest. Therefore, it is best to pay it back as soon as possible. 

Payday Loans – With payday loans, you are typically required to pay back the money more quickly, often within two weeks or by your next payday, with most people getting paid by their employer towards the end of each calendar month. Payday loans are designed to keep you going until your next payday. However, some lenders do provide more flexible repayment plans and may allow you to extend your repayment date if required or even renew your loan and allow the arrangement to rollover if a borrower is struggling to repay. Much like cash advances, a payday loan begins gathering interest immediately.

The Interest Rates of Cash Advances and Payday Loans

Interest rates are added on top of the loan amount you borrow (the ‘loan capital’) and will in a large way dictate the overall repayment amount and cost of any loan, be it a cash advance or payday loan.

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 Loans – 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? for more information)

The Requirements

Whether you opt for a payday or other loan option each lender will have their own requirements, which will cover things like how much you can borrow in your financial position, over how long your loan can be repaid and the interest rates applied to whichever loan you do end up getting. Furthermore, loan requirements will also dictate whether you can make early repayments without incurring additional charges and much more.

Cash Advance – In order to get a cash advance from your credit card provider, 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 Loans – 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.