Is There a Difference between Payday Loans and Cash Advances?

Jan 17

Is There a Difference between Payday Loans and Cash Advances?

Essentially, there is no difference between Payday Loans and Cash Advance Loans, but these types of loans must not be confused with cash advances, a term that refers to the service that most credit cards companies offer to cardholders. Payday Loans, are not only known as “cash advance loans”, but also called “payday advances”, “quick loans” or “online personal loans” among other terms that describe the same unsecured loans.

Payday loans do not require credit verification for an approval, just to write down a postdated check to the lender or schedule a transfer on the payday to repay the full amount of the payday loan plus the finance fees and interest rate generated in a variable term that usually ranges within 7 and 45 days.

Cash advances, on the other hand, are amounts of money that credit card holders can withdraw over the counter at a financial institution or bank, but more often through the countless ATM situated in strategic places all over the world. In this case, gaining access to cash advances is entirely dependent on a credit card and conditions outlined by the issuer.

Overview on Payday Loans

Payday Loans are loans that an individual can apply for upon his or her paycheck and designed to be repaid by a given date corresponding to the borrower’s payment day. Although, this type of loan can be repaid in installments, lenders commonly require that borrowers pay back the full amount plus interest and finance fees. The maximum amount that people can borrow depends on federal laws and the monthly income of the applicant, that has to be at least around $1,000 and, in many states, applicants must not have an outstanding payday loan when applying for a new one.

Overview on Cash Advances

Cash Advances are money that credit card holders can borrow directly from their own line of credit. This way, the cash available to withdraw depends on how much credit a cardholder has and how much the credit card issuer allows cashing out. Cash advances are the fastest way to borrow money, but individuals without credit cards need to apply for one, and among the many requisites to be approved, a steady minimum monthly amount and a good credit score are determining factors.

What is a Better Solution?

Payday loans are the most costly money that people can borrow because these loans have the highest interest rates in the financial market. Cash advances are also costly because the money withdrawn starts to accrue interests immediately, and these interests rates are higher than the regular interests of the credit card, but always will be lower than those of the payday loans, thus cash advances are the best solution, but only for credit card holders.