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Payday Loans and Cash Advance: How Are They Different?

Because there are so many different names for short-term loans found online, it can be difficult for consumers to know the differences between them. This is especially true when it comes to payday loans because of the various names used interchangeably to describe the same product. However, to help you understand better, here is a look at the differences between payday loans and cash advances:

Payday Loans

 “Payday loans” is the most common term for referring to short-term personal loans that are typically due to be repaid using a consumer’s next paycheck. They may also be known as payroll advances, payday advances, faxless payday loans, no credit check payday advances, and more.

 These loans are most often available in small amounts up to $1,000 or $1,500, and have APRs ranging, on average, from 390% to 780%.  Yes, you read that right.  They are also considered to be unsecured loans because lenders do not require collateral. While this may be beneficial because a valuable asset, such as a vehicle or home, will not be lost if you default on a loan, it also means that a lender can sue you in the event that you default on the loan.

 Payday loans do not require applicants to undergo credit checks to be eligible. By doing so, even those with poor credit ratings can get fast cash when it is needed. This can cause issues for those who are in financial distress with low credit scores, who are still able to qualify for this type of loan.

 Because of today’s fast-paced world, online loans are the most popular with consumers looking to get quick cash. All it takes to get a loan is an Internet connection and a few minutes dedicated to filling out an application. However, for those that do not like to work with computers or do not have Internet access, there are still physical stores that offer loans to those in need.

A word of caution -- payday loans may be the riskiest type of unsecured debt.  The draw of “fast cash” can be enticing to consumers experiencing a financial crisis, but the extremely high interest rates make it difficult, if not impossible, to pay back these short term loans quickly, without longer term financial consequences. Payday loans tend to be predatory in the sense that payday lenders are most prevalent in neighborhoods where a significant number of residents cannot qualify for mainstream loans.

Before considering a payday loan, consider whether there are safer alternatives that you have not considered.

 Cash Advance

 The term “cash advances” can refer to the same product that payday loan lenders provide. They are typically the same in every aspect since it is just another name used to draw in more customers. However, another use of the term actually applies to credit cards.

 Credit card cash advances are loans taken out using your credit card or line of credit. In many cases, no matter what your credit rating is, you can find credit cards to cater to your needs. However, the loan amounts you receive will depend on your credit limit, and the interest rates attached are higher than with standard credit card purchases. Your loan will also have to be paid off first before any money is put down on debt from existing standard purchases.

 As you can see, payday loans and cash advances can be used interchangeably except when the latter term is referring to credit card cash advances. However, no matter what name is attached to a short-term loan, you must always remember that unsecured debt, including these types of loans, must be paid back and will accrue interest. Be aware of the pitfalls to avoid a larger financial crisis down the road.

If you are experiencing financial difficulty and are looking for a solution, non-profit credit counseling can help you make sense of all your options. Contact us today for a free financial assessment with one of our certified credit counselors.

 

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4 Responses to Payday Loans and Cash Advance: How Are They Different?

  1. It makes sense that a personal loan would be in small amounts because of the fact that they are basically instantaneous. This would be really helpful if you didn’t have the money for a specific purchase but knew that you would have it within a short amount of time like being able to cover a monthly payment or something like that. I know that my brother has been having some financial struggles so maybe he would be able to talk to someone and see if this would be a good option for him.

  2. Heather says:

    Thanks for distinguishing the differences between these two forms of loans! Exorbitant interest rates will almost always lead to further debt, so it’s best to be cautious with things like payday loans if you want to really get your finances back on track.

  3. This blog explains difference between Payday Loans and Cash Advance in a very simple manner. Factual and precise.

  4. John Sharp says:

    Thanks for sharing useful information with us. It really is helpful to me. I always like to read quality material. Thanks for sharing with us.

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