Cash Advance vs Payday Loans: What is the Difference?
If you are a living, breathing human (sorry aliens, automatons, and swamp creatures - this post is not for you), chances are you’ve found yourself in an emergency situation and desperate for some cash. Of the many options, a credit card cash advance and Payday Loan are both famous for providing fast cash, but how exactly do they work? In what ways are they different? How do I know which one is right for me? I like where your head’s at. Let’s see if we can help!
What is a Cash Advance?
When you take out a credit card cash advance, you’re essentially borrowing cash against the credit limit on your credit card.1 This should not be confused with a typical credit card purchase, however. First, your credit card cash advance limit is not your full credit card limit, but rather somewhere in between your available balance and your total credit limit. Additionally, where your credit card typically offers a grace period for purchases - meaning you have some time to pay off your credit card balance before interest will accrue - a credit card cash advance usually starts to accumulate interest right away. This can be a costly difference, as the interest rates for a credit card cash advance can be much higher than the interest rate for purchases on your credit card.2 To request a credit card cash advance, you’ll need:
- Your credit card
- The PIN associated with your credit account (if using an ATM)
- An ATM or bank associated with your account
If you’re looking for a cash advance online, there are several in-app options to choose from.3 Note: Speedy Cash does not offer credit card cash advances. Find out what alternative options are available in your state.
What is a Payday Loan?
With a Payday Loan, you’re borrowing money against an income source that is typically repaid at the time of your next pay.4 Payday Loans are unsecured, meaning you don’t need to put up any collateral to take out funds, and interest is usually calculated as a flat-rate fee up front, called a finance charge. Payday Loans can have high interest rates compared to other personal loans, but often grant approvals even with a less-than-stellar credit score. To apply for a Payday Loan, you’ll need to:
- Be at least 18 years old (19 years old in Alabama)
- Have an open and active bank account
- Have valid identification
- Receive a steady income
Payday Loans are available online or in-store through a few easy steps.
So what’s the difference?
While both credit card cash advances and Payday Loans allow you to borrow cash quickly, repayment can look quite different. Payday Loans are typically expected to be repaid all at once as soon as you receive your next round of income. This one-time payoff means that all funds go directly towards paying off your loan balance. With credit card cash advances, you can carry your balance into your next statement period for as long as you need while continuing to accrue interest. Because of this feature, you also want to pay close attention to where your payments are going. Some companies will allocate a portion of your payment towards the lowest annual percentage rate charge.5
Both Payday Loans and credit card cash advances are considered higher risk due to their associated fees and higher interest rates. While Payday Loan fees may be higher up front, they can still be manageable if you’re able to pay off your balance during the loan period. On the other hand, interest for a credit card cash advance begins accruing right away, so if you’re only paying the minimum balance on your credit card each month, the total cost could end up being much more than a Payday Loan after months or years.5:1 Ultimately, it’s important to ensure you’re able to pay back both types quickly before pulling the trigger.
How do I know what’s right for me?
Are the risks worth the payoff? Only you can decide. However, we should point out that there are several options apart from the ones detailed above. Perhaps you’re needing a larger lump sum that is paid off in monthly installments. Or maybe you’re looking for the flexibility of a credit card with the structure of a loan. Whatever your situation, Speedy Cash believes in finding the right solution for your financial needs. Have additional questions or need extra support? Stop by a store and speak with one of our Customer Service Representatives. We are here for you!
- Hargrave, Lauren (2022, June 22). What is a cash advance and how does it work? Retrieved from: https://www.creditkarma.com/credit-cards/i/what-is-a-cash-advance
- White, Alexandria (2022, June 22). What is a cash advance and how do they work? Retrieved from CNBC: https://www.cnbc.com/select/what-is-a-cash-advance-and-how-do-they-work/
- Millerbernd, Annie (2022, May 9). 5 Loan Apps in 2022: Cash Advances and Overdraft Protection. Retrieved from: https://www.nerdwallet.com/article/loans/personal-loans/loan-apps
- Bareham, Hanneh (2022, March 29). What you need to know about payday loans. Retrieved from: https://www.bankrate.com/loans/personal-loans/payday-loans/
- Musinski, Bob (2020, August 20). Is a Credit Card Cash Advance Better Than a Payday Loan? Retrieved from: https://money.usnews.com/credit-cards/articles/is-a-credit-card-cash-advance-better-than-a-payday-loan