Short term lending comes down to two main categories. Payday loans and cash advances. Although there are other forms of short term loans available, these are the two most popularly used systems for short term borrowing and lending. The two are so commonly used that the term cash advance is often mistaken and used for Payday loans. People who are in need of some money and want to repay it back as soon as possible might be thinking, which one they should go with. In this huge world of borrowing and lending there are numerous lenders that offer short term loans on a monthly basis.

Both Payday loans and cash advances are instant money in your hand, but they come attached with higher interest rates. They are also both available for people who have a low or no credit score.

The real question is which one should you go for? Both the forms of loan have their own advantages and their own perks. Here are some of the main differences between Payday loans and cash advances to help you make your decision:

How to acquire

Payday loans

Payday loans are usually acquired through direct contact with the lender wither online or by phone. The lender wires the money to your account within a few hours or a few working days. Payday loans have become quite popular and people who need some extra cash in their time of need can easily get it from a Payday lender.

The borrowed amount is to be paid with interest by the next time they get their monthly income. Hence the term Payday is associated with this kind of loan. There are numerous Payday lenders available all over the internet, but it is important to be careful while taking a loan from a lender as many people bait people in and then lend them an amount with a very high interest rate.

Most notable lenders check the income of the borrower to suggest them a reasonable amount which they will be able to pay back. Be sure to go to authentic lenders which do not fool you into borrowing large amounts for maximum profit.

Cash advance

A cash advance is a loan that is acquired by credit or charge card holders. They can use the facility of an ATM to access the card company’s lending service and take out a small loan through the machine. They are very convenient but like payday loans, they have a large interest attached to them and in this case, if a person is taking a cash advance without understanding the full terms and conditions of repayment, they can find themselves ina  very tight spot.

Transactions for things such as pay orders, lottery tickets and gaming chips are also considered to be cash advances but it must be made clear by the vendor that they will charge these as a cash advance because they have a higher interest rates. In case the vendor fails to inform the credit card holder, the transaction will be treated as a non cash advance type transaction with the usual interest rates.

Interest Rates

Payday Loans

Interest rates for payday loans are usually higher than what you pay for a long term loan. This is because the only way a lender can benefit from a short term loan is if they have a higher rate. Most countries have passed a law that a lender cannot go over the rate of 24% in the case of Payday loans. Most payday loans have between 15-20% interest attached to them. Different lenders tend to give different rates and although you do not have to have a good credit score to get a Payday loan, you can get a better interest rate if you have higher credit score.

Be sure to check with different lenders and discuss the interest rates with them. This is a very competitive market and lenders try to offer better rates than their competitors for more business. In case of Payday loans you can even talk with your lender to negotiate the interest rates. If you have a good enough credit score, you might be able to bring down the interest rate quite low.

Cash Advance

Cash advance has a high interest rate attached to it. When you normal charge a purchase on your credit card, you get an interest of 5-7% on it, but in case of a cash advance if you have an APR of 15% you would probably get an interest rate of 22 percent.

In the case of cash advance, you are not able to negotiate the interest rates because they are fixed, and you can’t really talk to an ATM machine to bring them down. Make sure you talk to your credit card company representative to understand the terms of taking a cash advance to avoid problems when paying back.
Short term lending has become a lot easier and accessible, with so many Payday lenders and cash advance providers, but it is very important to understand that these loans can sometimes put you in a very tough spot if you are not able to pay them back on time and with full interest. When considering taking a short term loan out, make sure you know which one to choose and check everything with the lender before you take the loan.

When taking out a cash advance, you do not have the advantage of comparing rates. You have to go with whatever rate the credit card company has assigned to the loan. When it comes to Payday loans, you have a choice. You can compare different lenders and decide which one suits your financial needs the best. To compare Payday loans, visit https://paydayloans.quiddicompare.co.uk and get the best rates out of your short term loans. Make sure you negotiate if possible with your lender as you never know what factor might affect your interest rate and bring it down.

Sources

http://www.investopedia.com/ask/answers/110614/what-are-differences-between-payday-loans-and-cash-advances.asp

https://www.advanceamerica.net/questions/payday-loans-cash-advances

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