Emily Clarke

Payday Loan vs. Cash Advance

When you need money to cover unplanned expenses and emergencies, you have many ways to get it. Two of the most popular methods are payday loans and cash advances. While some use these terms interchangeably, they are two distinct options with very different processes.

Read on to learn more about the differences between an instant cash advance and a payday loan.

Payday Loan Basics

A payday loan usually comes from specialty lenders that operate online or have in-person offices. How much you can borrow varies based on state law, but it's typically up to $1,000. Payday loans work similarly to personal loans but often come with significantly steeper fees.

Finance charges come based on how much you borrow, and lenders typically apply fees for every $100 of your loan. It can be up to $30 per $100 you borrow, making a $1,000 loan cost around $300. But that's not all.

The loan accrues interest immediately. The typical interest rate is around 400 percent or more. Terms can vary, but the repayment window is usually around two weeks. You can pay it off sooner to lower your accrued interest, but late payments can result in steep penalties that put you in a revolving door of debt.

Cash Advance Basics

A cash advance is a short-term loan that you can get from a credit card or instant cash advance service on your smartphone. Like payday loans, an advance is meant to cover you until your next paycheck. It has short terms, but repayment is usually automatic and comes directly from your next paycheck.

The difference with advances lies in how much you can borrow and the fees that come with it. Many consider advances a more financially sound option because you have strict limits on borrowing amounts. The exact amount may depend on your average paycheck, a defined amount set by the lender or a percentage of your credit limit.

These loans are safer by design. You can't borrow more than you can pay back, making it more manageable for those in a financial bind. The fees are also more reasonable. It's usually around $20 or a small percentage of the advance.

Author Resource:-

Emily Clarke writes about cash advances, overdraft protection & finance apps. You can find her thoughts at financial app blog.