Posted by It happens to everybody. Your car have had a major failure and can’t start, your rent is due next week or your store needs urgent repairs. Everybody is susceptible to the type of misfortune that necessitates having extra cash on hand. These circumstances don’t change if your credit is less than perfect or your business account is a little short on funds.
Under the circumstances a short term loan may be just what the financial doctor ordered – a way to get the cash you want today without going through the hassles of complicated paperwork and long drawn waiting periods. Cash advances and payday loans are two short-term loan options which are popular amongst borrowers. Being able to distinguish between the two is key in figuring out how to approach your situation. On the face of it, both loans may seem fairly similar, however a more careful study of the two will reveal unique sets of requirements, processes and risks. Lets have a look at a few of them:
#1 Understanding the Fundamentals
Both Payday Loans and Cash Advances are fundamentally different in their processing and repayment policy.
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Payday Loan |
Cash Advance |
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As the word suggests a Payday Loan is an advance on upcoming wages. So if you need a new boiler urgently, and don’t have access to money before payday, the Payday Loan can be a great option. The idea is to provide swift funds when you require them, and you repay that amount within a few days or weeks. As long as you go according to the intended agreement, this loan should provide quick access to required funds.Don’t go for Payday Loans if you cannot keep up with the repayment |
Cash Advances are fundamentally different, however are also a good source of quick funds when required. This form of borrowing is done directly by credit card companies and money can be accessed through an ATM. However, Cash Advances should not be confused with the normal credit card lending.
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#2 Purpose of the Loan
The purpose of the loan is a good indication of the loan type you should consider.
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Payday Loan |
Cash Advance |
| If you are looking for a loan for more personal matters a payday loan is the ideal choice. A car breakdown or a computer failure that needs immediate repair is a perfect example of fast cash utilisation provided by a payday loan. | If the purpose for the loan is business related, you should strongly consider going with a Cash Advance to provide you with the funding that you need. Expanding business space or hiring new resources are both good reasons for going ahead with a Cash Advance. |
#3 Amount of Money Required
The amount of money required is another critical determinant of whether you should consider a Payday Loan or Cash Advance.
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Payday Loan |
Cash Advance |
| The minimum amount borrowed on a Payday Loan can sometimes be as low as £100, while the maximum is set at £1000. Although, this number could vary depending on the borrower’s credit history and present circumstance. | The Cash Advance system is relatively more flexible and generally depends on the individuals current credit limits. In reality, the upper limit can go to a few hundreds and the lower limit can be determined by the lowest denomination available at the ATM. |
#4 Associated Fees
In addition to understanding how the loan process works, it also important to know how much you would have to repay during the term of the loan. Choosing the wrong option could end up costing money in the long run.
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Payday Loan |
Cash Advance |
| With Payday loans the interest rate in generally on the higher side. One of the reasons behind this is that lenders are unsure whether borrowers will pay up. It’s quite common that lenders will charge APRs upwards of 1000%. These are also called High Cost Short Term Loans. | For Cash Advances there can be a small transaction fee, anywhere between 2-5%. For larger advances, this fee is fairly significant. Keep in-mind that this is not the only fee charged, depending on the lenders payback policy, the fees could vary. On the brighter side, relative APRs are on the lower side. |
Always remember to compare loans from multiple lenders so that you get the cheapest loan available in the market.
