Cash advance vs. payday loan are similar but diverse methods of obtaining quick loans. However, the obvious difference is that cash advances are way cheaper than payday loans. For perspective, borrowers of payday loans usually repay an average percentage rate (APR) of 400% or higher.
The rate of cash advance is low. Nonetheless, this does not infer that payday loans are devoid of merits and cash advance of drawbacks. Read on to understand the peculiarities of these two loan facilities.
Understanding Cash Advance and Payday Loan
A payday loan is a short-term loan that borrowers are expected to pay off within 14 days of receiving it. The loan amount often ranges between $50 and $1,000. As mentioned earlier, despite the short repayment plans, borrowers have to cough up triple-figure APRs.
In instances where borrowers cannot meet the repayment deadline, lenders have a custom of repurposing the loan. The repurposed loan is rolled over with even more interest and another application charge.
The terms of a payday loan depend on policy caps operating in your domiciliary state. Indeed, some states have outrightly canceled the issuing of payday loans due to their difficult terms. So, what is a cash advance?
Cash advance loans are usually offered to borrowers through apps and related services. This class of loans is often called early payday loans as they involve loan issuance to be paid off on the next payday. Award amounts usually range between $25 and $750; in rare instances, repeat borrowers may get higher.
Some cash advance apps woo customers with zero interest or no processing charges. However, such offers usually take a while to materialize, which defeats the purpose of urgently taking out a cash advance. Express services of cash advance apps come with heavy fees or rates and sometimes a combination of the two.
No matter how high the charges on a cash advance app loan may be, they are nothing compared to the APR of payday loans.
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Cash Advance Apps vs. Payday Loans: Understanding the Differences
We have established that payday loans and cash advance apps offer almost similar services. However, we shall identify their specific differences in this section.
1. Duration of Fund Disbursement
You can receive your loan disbursement the same day you apply for a payday loan. On the contrary, a cash advance app could take several days before the applicant gets the loan amount. However, there are usually express service offers on a cash advance, which, of course, comes at an extra charge.
2. Limits of Loan Amount
Payday loans offer borrowers a statewide loan amount limit during their first application. However, a cash advance often starts at a low amount and increases as the borrower proves their creditworthiness.
3. Accruing Loan Charges
Payday loans are usually more expensive to service due to the triple-figure APR that borrowers have to cough up during the short repayment period. Payday loans can only be expensive if you request for an express processing of your loan application.
A payday loan is more likely to put a borrower in financial straits than the cash advance app equivalent.
4. Credit Building Features
Depending on the lender, cash advance apps may even offer features that improve the borrower’s financial reality. For example, some apps help bolster a borrower’s credit history and money management skills.
Pros and Cons of Cash Advances
Collateral is not needed to obtain a cash advance, except if it’s a secured loan. In comparison to payday loans, cash advances are not as expensive. The fees are so cheap that besides expediting your application and leaving a tip, you may end up paying zero charges for a cash advance.
An added advantage of a cash advance is that you don’t have to visit the lender or merchant’s office to assess the funds. Instead, the loan sum can be deposited directly into your bank account or credit card and withdrawn from an ATM machine.
Now, to some demerits of cash advance loans. If you try to speed up the application process for this loan class, it will attract high APRs and fees. Though the APR of cash advances is not as high as that of payday loans, it can be quite higher than the interest on credit card loans.
Another Achilles heel of cash advances is that loan interest kicks in and starts accruing as soon as you draw the money.
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Pros and Cons of Payday Loan
We have already addressed the “What is payday loan?” question. A quick look at some merits of payday loans. First, you can source emergency funds from this loan scheme, as money can be made available on the day of application. Two, payday loans do not require hard inquiries on your credit history.
The most prominent demerit of taking out a payday loan is the extremely high interest rates, sometimes up to 400%. In addition, borrowers are required to pay back the loan amount within two to four weeks. It is very easy to overborrow on a payday loan, making the loan result in a bad credit situation. The worst, however, is the hurt that rollover of payday loans could do to your credit score.
So, this brings us to the end of cash advance vs. payday loan pros and cons. Feel free to pick what works best for your emergency loan.