It can be very stressful to fall short of cash before payday, especially when many vendors and bill collectors will only take cash.
Although you can seek quick cash relief from friends and relatives, payday loans and cash advances offer a faster and more convenient way to get quick cash. This is why millions more Americans are choosing these two short-term loan options.
However, these loans can deliver costly consequences if you are unaware of them. So, this payday loan vs. cash advance article will give you the full details of both loan options.
What Are Payday Loans?
Storefront or online payday lenders offer loans between $50 to $1,000 with a repayment period of 2-4 weeks, usually your next payday. Depending on the state you live in, the payday loan terms vary.
Although the finance charges appear to be a small dollar amount, the short repayment schedule can lead to high-interest rates.
Everything works well, provided you repay your loan on time. If you can't meet your repayment obligation, some lenders will offer you a rollover into a new payday loan with an additional finance charge and interest.
Pros of Payday Loans
Payday loans have several advantages that can apply to some short-term borrowers.
- No credit check involved: Payday loans provide quick cash to consumers with bad or no credit. All you need is a bank account, proof of income, and ID. They also appeal to borrowers wishing to avoid a hard credit check or any adverse strike on their credit score.
- Quick loan process: Applying for and receiving a payday loan usually takes a little longer than going into a supermarket and buying a pound of salami.
- Revolving and convenient access: You can have repeated and reliable access to quick cash through payday lenders whenever you need it. There are over 20,000 storefronts and hundreds of websites that offer payday loans.
- Unsecured loan: Unlike a pawn shop or car title lenders, you don't have to put up any of your possessions to secure a loan because payday loans are a form of unsecured debt.
Cons of Payday Loans
In addition to being a potential debt trap, payday loans have a few disadvantages, such as:
- High cost: Payday loans are known for incredibly high fees and interest rates. Although fees vary from state to state, the average price is $15 per $100 loan, equaling an annual interest rate of about 400%.
- Risk of bank overdrafts: Lenders finalize your payday loan by having you write a check to them for the fee and the loan amount. Since they have full access to your banking account, they can withdraw the total amount after the 14-day repayment period. If you don't have sufficient funds, the lender's withdrawal could cause an overdraft on your account.
- Possible wage garnishment: If you don't pay your payday loan debt, the lender can take you to court and get a legal order to make your employer withhold a portion of your pay to settle your debt.
- Creating a cycle of debt: You could end up in a cycle of debt if you take out more payday loans to pay off old ones.
Payday Loans Use Cases
You can use payday loans to satisfy a pressing need to pay a cash-only essential expense like rent, utilities, or an emergency plumbing charge. Also, payday loans can be a viable option if you don't qualify for a credit card, have maxed out your credit balances, or lack enough savings to cover the costs.
However, you shouldn't take out a payday loan unless you're 100% sure you can repay the loan within two weeks.
What Is a Cash Advance
A cash advance is a short-term loan from your credit card company, merchants, or employer.
When you withdraw your cash advance from an ATM or bank, the money in your hand is a loan from one of these lenders. And you must repay it like a regular charge on your other credit accounts, except you pay a fee and a higher interest rate.
Credit card companies usually set your daily cash advance limit according to your credit card balance percentage. The typical maximum cash advance limit is under $500.
Pros of a Cash Advance
A cash advance has several significant advantages. These are the most prominent.
- Flexibility: A cash advance does not lock you into a strict two-week pay period, giving you the option to convert the debt to long-term.
- No hard or soft credit check: Since the credit card company draws the cash advance from your existing account, it won't harm your credit score with a hard credit check.
- Safety and Financial Controls: Cash advances usually have a maximum withdrawal cap on your credit line. Since you only get a cash advance of a small percentage of your total credit limit, it helps you manage the risk of going too deeply into debt.
Cons of a Cash Advance
For some borrowers, cash advances may not be the best short-term loan option. Here are some cautionary facts.
- Security: Unlike a credit card, a lost or stolen cash advance is gone forever. Your credit card company can't help if you use cash advance money to pay a fraudulent merchant.
- Fees plus interest charges: Unlike regular credit balances, cash advances don't have an interest grace period. Consequently, your interest charges start as soon as you take the loan. And the cash advance's higher interest replaces the regular credit balance interest until you pay off the total amount due for the cash advance. By comparison, a same-day loan from Jora Credit doesn't charge extra fees.
- Potential damage: Credit card companies share your cash advance payment history with the three major credit bureaus. So, your credit score could drop if you fall behind on your payments.
- Limited Borrowing Amount: Since you can only borrow only about 5% to 10% of your credit limit, a cash advance may not provide the cash amount to solve your problem. Alternatively, a same-day loan from Jora Credit can provide up to $4,000.
Cash Advance Use Cases
A cash advance primarily allows you to use your credit card, merchant, or another credit account to pay emergency bills, peer-to-peer purchases, or rent. But it also can provide a quick solution when an unexpected expense causes a cash crunch a few weeks before payday. Also, if you have a side business, cash advances help buy inventory when your cash flow is irregular.
Making Your Final Decision
Regardless of your financial status, the possibility of needing fast money before payday is viable. This payday vs. cash advance comparison reveals that both short-term loans can put quick cash in your hands. But you must be careful with them.
On the other hand, a better option is to take out a same-day Jora Credit loan with higher loan amounts and no hidden fees. So, apply for a loan from Jora Credit today.