Key Differences between a Cash Advance and Payday Loan

Key Differences between a Cash Advance and Payday Loan

Payday loans and app-based cash advance services allow you to borrow against your next paycheck to meet your financial needs today. But because of their high borrowing costs, these services could do more harm than good.

If you’re in need of emergency cash, you may be wondering what the difference is between a cash advance and a payday loan. Both types of loans can provide you with the funds you need quickly, but there are some key differences to be aware of.

What Is a Payday Loan?

A payday loan is a type of unsecured loan that is typically offered by a payday lender. The lender will give you a loan based on your next paycheck, and you will be required to repay the loan plus fees on your next payday.

Payday loans are typically for small amounts of money, and the fees can be very high. For example, a $100 payday loan with a $15 fee would have an annual percentage rate (APR) of 391%. This means that if you were to roll over the loan for one year, you would end up paying $390 in fees, which is more than the original loan amount.

What Is a Cash Advance Loan?

A cash advance is a short-term loan that you can use to cover expenses until your next paycheck arrives. The loan is typically due on your next payday, which is why it’s sometimes called a “cash advance.” To qualify for a cash advance, you’ll need to have a steady source of income and a bank account.

Some lenders may also require you to provide proof of employment or income. Once you’re approved for the loan, you’ll typically be able to access the funds within 24 hours. The loan amount, plus any fees and interest, will be due on your next payday. If you’re unable to repay the loan on time, you may be able to “roll over” the loan into a new one. However, this will typically result in additional fees and interest charges.

4 Key Differences between a Cash Advance and a Payday Loan

Here’s a closer look at each of the key differences (Repayment Terms, Fees, Interest Rates, Credit Score Requirements) between the two:

1. Repayment Terms

With a cash advance, you’ll typically have a shorter repayment period than with a payday loan. 

With a payday loan, you’ll typically have a set period to repay the loan in full. The repayment period is usually between 14 and 30 days, although it may be shorter or longer depending on the state in which you live.

2. Fees

With a cash advance, you’ll typically pay a cash advance fee, which is usually a percentage of the amount you withdraw but could also be a flat fee. 

With a payday loan, you’ll typically pay a loan origination fee, which is usually a percentage of the amount you borrow. For example, if you borrow $100 with a $15 loan origination fee, you’ll pay a $15 fee. You’ll also pay interest on the amount you borrow.

3. Interest Rates

The interest rate is the amount you pay in interest on the amount you borrow. Interest rates are typically expressed as an annual percentage rate (APR). Interest rates on payday loans are typically higher than interest rates on cash advances. For example, the average interest rate on a payday loan is about 400%, while the average interest rate on a cash advance is about 24%.

4. Credit Score Requirements 

The credit score requirement is the minimum credit score you’ll need to qualify for a loan. Payday loans typically don’t have any credit score requirements, while cash advances typically require a credit score of at least 650.

Which One Should You Get?

It is important to understand the difference between cash advances and payday loans to choose the best option for your financial needs. Cash advances are best for short-term cash needs, while payday loans are better for longer-term cash needs. Both options have their own pros and cons, so be sure to weigh your options carefully before making a decision.

No matter why you need the money, whether it’s to pay down credit debt or purchase your needs, King of Kash is in your corner. Our hassle-free online no credit check loans approval process has been streamlined so you can get the money you need when you need it and not have to wait days. You can apply for your loan online, or if you are in Missouri, you can call one of our convenient locations nearest you to speak with one of our online loan specialists.