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What’s the difference between a Cash Advance and Payday Loans?

- by Sarah Connelly

Ever wondered what the difference is between a cash advance and payday loans? This article will help clear things up.

We all need a helping hand from time to time, especially when money is involved. You may think that you have things under control. But one unforeseen development could turn a stable situation into a financial nightmare. Thankfully, you can often solve these issues with short-term borrowing, such as a cash advance and payday loans. As with any major financial decision, it’s imperative that you enter this arena with the information needed to make the best decision. Otherwise, you could be opening yourself to an even worse situation further down the line.

cash advance and payday loans - what's the difference? Cashfloat

With regards to short-term lending, cash advances and payday loans are two of the most commonly used options. Not only do they offer borrowers a chance to access their funds quickly, but they are less strict over lending requirements.

So even if you’re credit history has stopped you from accessing other forms of lending, these two options are probably open. Given that people with less than perfect credit scores are often the ones who most need it, those short-term loans can be a godsend.

But which one is right for you? Let’s take a closer look.

A payday loan

In its most basic sense, a payday loan is essentially an advance on your upcoming wages. So if you’ve suffered a blown car tyre, for example, and need to access your wages before pay day, this can be the perfect option.

This type of loan is designed so that you pay it back within a matter of days and no longer than a few weeks. If you aren’t able to meet those demands, the high-interest rates could cost you dearly. However, as long as you can stick to the intended agreement, it can be a fantastic way to access money fast before clearing the debt quickly too.

A Cash Advance

The cash advance is slightly different but is another short-term loan option. Credit card issuers commonly handle these. They can allow the borrower to directly withdraw funds via the credit card. It offers fast access, but should not be confused with standard credit card lending.

Cash advances can also take other forms including merchant cash advances. This can open up your options considerably, especially if you need the funds for business purposes.


How Much Can I Borrow?

One of the main differences between a cash advance and payday loans is the way that the available funds are calculated. As such, this has a huge influence on the level of funds available too.

Payday loan companies usually work with standard borrowing amounts. The minimum amount borrowed can often be as little as £50 while the maximum is often set to £1,000. There are circumstances where those parameters can be increased, like when a customer has built a history with the lender. Generally speaking, though, the £50-£1,000 model is a relatively accurate barometer.

cash advance and payday loans - what's the difference? Cashfloat

Conversely, the cash advance system can be a little more flexible. Many credit card issuers will determine an individual’s amount against their current credit limits. As such, the specific figure can fluctuate from person to person. Again, though, a history with the lender will likely result in greater opportunities. In reality, though, the upper limit is likely to be hundreds. The minimum, however, can be as little as the lowest denomination available at the given ATM.

Merchant cash advances often work on figures based on monthly sales revenue. They can be arranged through other methods, and have unique repayment models too. This post, however, is focused primarily on the consumer situation.

What Will I Need To Access The Funds?

With a cash advance and payday loans, short term borrowing through these methods is far more accessible. However, while the requirements are lenient, it’s important to know what you need to do during the process.

cash advance and payday loans - what's the difference? Cashfloat

Unsurprisingly, given their nature, sometimes payday loan lenders need to see proof of your future earnings. Therefore, bank statements that show the recent earning history are essential. Meanwhile, you’ll also need to show evidence of identification through a passport or driving licence. Unfortunately, if you need money due to recently losing your job, the payday loan option will probably be off limits. In truth, though, it’s probably for the best as missed repayments could open up a spiral of debt.

Given that you will have an existing history with your credit card issuer accessing funds through cash advance is even easier. You’ve already supplied the necessary identification checks. And because the funds aren’t related to your earnings, you can bypass those issues too. In turn, this can keep the option open for an even greater spectrum of scenarios.

Of course, you’ll still need to take responsibility for your lending at all times. Still, short-term borrowing through both methods is pretty straightforward. Furthermore, it can be the perfect way to overcome those temporary cash flow problems.

Where Can I Access My Cash advances and Payday Loans?

The next big question is how you can get your hands on a cash advance and payday loans. Payday loans are usually paid through bank transfer, and can often hit your account within an hour. The growth of online payday lenders means that you can now complete the process without the need for hitting the local high street.

cash advance payday loans - what's the difference? Cashfloat

As for cash advances, you’ll be using your credit card to access funds. So if there’s an ATM around, you’ll be able to withdraw those funds immediately. This can be especially useful when you are in a position where cash is king.

Cash advances are quicker, so if you need money immediately, then this is the better option. However, payday loan funds can be made available within a very short timeframe also. Frankly, the personal circumstances will dictate what is best for you.

Using the nearest ATM isn’t your only option for a cash advance, though. You can also get cash advances directly from the bank, through cheque, or a credit union. If you do take these options, though, you will need photo I.D to successfully make the withdrawal. Nonetheless, having those additional options open can give cash advances an edge over the personal loan option.

Cash Advance and Payday Loans Fees

In addition to understanding the process of gaining funds, it’s equally vital that you appreciate the terms of your repayment. After all, choosing the wrong option now could end up costing you a lot more money in the long run. Besides, fixing those short-term issues should never come at the cost of long-term financial health.

cash advance payday loans - what's the difference? Cashfloat

Payday loan lenders know that not everyone will pay up, which is part of the reason that the interest fees are so high. It isn’t uncommon for payday loans to carry APR in excess of 1000%. Of course, as a responsible borrower, you’ll be looking to clear the debt before it spirals into those horrific fees. Nonetheless, if you are going for a payday loan, it’s vital that you check the different lenders available. In truth, though, the hassle of doing this is another downside of taking this avenue.

Cash advance loans encounter small transaction fees, anywhere between 2-5%. On bigger cash advances, this can become quite a significant cost. However, paying that small fee for a small emergency doesn’t feel overly problematic. This isn’t the only fee that you’ll encounter, though. APRs are far smaller, but they’re still significant. Once again, early repayment is best with a cash advance and payday loans alike.

You will encounter fees regardless of what loan you take. By understanding them now, you’ll be able to calculate the best solution far easier. Remember to check the limits of both options too, though. After all, the last thing you want to do is combine borrowing through both strategies as this will only make things seem harder.

The Verdict

Cash advance and payday loans can both be fantastic ways to overcome temporary money problems. Whether it’s fixing a problem in the home or clearing a high-interest debt fast, short-term borrowing is an ideal solution. However, it’s always important to make the right financial decision for you.

In either scenario, you should only use short term loans when it’s genuinely needed. Taking on debt for the sake of a night out or buying a new TV is never wise. However, when money is genuinely needed fast, these options can be a life-saver. Remember, though, borrowing more results in a larger payment too. Only take out what you need.

Payday loans are not bad as long as you use them correctly. Click To Tweet

If you need money fast and don’t already have a credit card issuer, you may want to look at payday loans. Just remember that paying it back promptly is crucial. Unfortunately, failing to do this will open up the worst kind of financial nightmare imaginable.

But if you need a small amount of cash in an emergency, using a cash advance from your credit card issuer is probably the best option available. This option allows quick access without opening accounts with new lenders. Not only does this make the repayment management a little easier, but it also hands you a little-added flexibility.

Ultimately, the right option is the one that’s right for your long-term finances as well as the short. Even if you need funds fast, don’t rush into the decision. Consider the options to choose the right pathway, and you will not regret it.

Cash Advance and Payday Loans difference - cashfloat
PUBLISHED BY
Sarah Connelly
Sarah is an enthusiastic writer, blogger and an eager agent of change. Although she has never been one to voice her opinion publicly, Sarah has dedicated herself to helping Cashfloat spread awareness about common financial issues and the importance of money management. Through her writing, Sarah hopes to empower a positive and lasting change in people. Sarah believes strongly in ethical business management and consumer protection. After completing her degree in Computer Science in one of London’s esteemed universities, Sarah has come to adore the buzzing hub of London city. Still, in her free time, Sarah enjoys reading, researching, watching movies and eating out. After all, #YOLO!
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