What are the differences between payday loans and cash advances?


Loans are the funding of money from one entity to another but on the condition that it will be paid back within a certain amount of time or with some sort of an interest. Loans are generally given to people based on different terms and conditions, which generally tend to cover aspects like what will be the interest rate and after how many months or years, the client has to repay the loan.

Loans can be acquired for different kinds of purposes. It varies from person to person. However, the most common reason to borrow money is an investment. People often take loans from banks when they need investment in order to start their own business. Other common reasons to take loans include the elements of personal satisfaction like vacations, buying a new car etc.

Here is a list of advantages and disadvantages of takings loans:

  1. It allows instant purchase meaning that if you wish to buy a new car, you can easily purchase it by taking a loan from the bank.
  2. Payment is decided by both the parties hence the borrower can make the payment on time without any delay.
  3. Loans allow the people to invest in different businesses and generate income. Income generation will also allow them to repay their loan on time.

  1. Loans often transform into long-term debts meaning that the borrower has to make the payments on time since he agreed to the various terms and conditions laid down in return for taking the loan.
  2. Borrowers often face serious consequences if they are unable to repay the loan on time.
  3. Many few people or banks allows the option of early repayment so even if you have the money to repay all your loan at once, you are unlikely to do so as it depends on whether the option of early repayment is available or not.

Moreover, the most common type of loans that individuals might come across are payday loans, cash advance and cash loans.

Payday Loans
Payday loans are also called salary loans and they are a form of a short- term borrowing of money on high-interest rates. Under the payday loan, the client who wishes to borrow money writes a cheque with the amount he wishes to borrow and the date on which he needs the money. The lender is responsible for giving the money to the client hence he cashes the cheque on the mutually agreed date. As payday loans are short term loans they should be repaid to the lender on the borrower's next payday.

Cash Advance
Cash Advance is another type of a short-term loan that is generally taken from a bank. However, the term cash advance generally applies to the concept of a credit card as well under which people can withdraw a certain amount of money either through the help of ATM or directly from the bank. It depends mainly on the convenience of the client. People generally use cash advance facility more as it is a quick way of borrowing money from the bank without experiencing any hassle like going through various terms and conditions before you sign the document to get the loan. Cash advances are easy to obtain as all the relevant information has been provided to the bank before when the credit card was issued to the client. However, cash advances incur a fee of maximum 3 to 5 percent mainly when the amount is being borrowed. Interest rates are often higher in the case of loans as compared to other transactions that are made through the credit card.

Cash Loans
Cash Loans are also used by people for various different kinds of activities and purposes. Cash loans often include huge amounts of money that are borrowed from different sources like a bank etc. However, the loan is repaid in the form of installments that are mutually agreed upon by both the parties.

Relationship between Loans and Interest Rates
The relationship between loans and interest rates persist in all of the above-mentioned loans i.e. payday loans, cash advance or cash loans. However, interest rates often vary depending on the preferences of both the parties. The interest rates can either be fixed, which means that they remain constant no matter after how many months or years the client manages to repay the loan or the interest rates can increase as time passes by, which means that since the value of money changes with time the percentage of interest rates will also vary. However, if a loan is secured by a collateral material, like house, car or any other types of properties then the interest rates would be lower as compared to other scenarios where the interest rates are free and not secured by anything. People often take help from a cosigner who ensures that you get the loan on lower interest rates but in the case where the borrower is unable to pay the money on time, the cosigner would be liable to pay the money or to make amends.

Loans and Repayment of Loans
The repayment of loans will determine that how much money you have to pay to the lender and after how many days the money needs to be repaid. The repayment of loans also varies as it mainly depends on the amount of money you have borrowed. For example in cases where huge amounts of money are borrowed the borrower would want to repay the loan in installments as huge amounts of money are typically difficult to repay. However, in cases from small amounts of money is borrowed the repayment schedule is decided by the parties. For example, the parties can decide upon a date on which the loan needs to be repaid or after which the interest rates would start increasing. Under cash advances, the repayment of a loan is done through monthly installments. The total sum of money borrowed is divided amongst the number of months within which you wish to repay the loan.

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