Credible Takeaways
- Both payday loans and cash advances can be expensive, especially if you don’t pay them off quickly.
- Payday loans and cash advance apps can have APRs upward of 400%, while credit card cash advances have APRs of around 30%, plus fees.
- Some cash advances via apps can be low-cost if you don't expedite fund delivery or leave a tip.
- Consider alternatives like personal loans, financial assistance, and payday alternative loans — especially if you can’t repay a payday loan or cash advance quickly.
It’s never fun to find yourself in a situation where you’re short on cash. When those situations happen, you may wonder whether you should take out a payday loan or a cash advance from your credit card or a cash advance app.
It’s important to understand how much you’ll pay to borrow via any of these options in order to determine which to use, and if you’ll be better off with another type of loan.
What is a payday loan?
A payday loan is a short-term, high-cost loan, usually for amounts up to $500 — though loan maximums vary by state. Payday lenders, rather than banks or credit unions, offer payday loans.
When you get a payday loan, you may leave a check with the lender dated for your next payday that includes the amount you're borrowing plus fees and financing costs. And you walk away with cash or a check. Some lenders may fund your loan via direct deposit, which can take a couple of days.
Unlike installment loans, payday loans are usually due in full within two to four weeks of receiving the loan. But certain lenders may allow you to renew the loan and extend the due date for an additional fee. But this can get expensive.
Depending on where you live, the cost of a payday loan can be extremely high. Payday lenders may charge $10 to $30 per $100 you borrow, which equates to triple-digit annual percentage rates (APRs). For example, in the state with the highest payday loan costs, Idaho, lenders charge an average payday loan APR of 652%.
Learn More: Payday Loan Requirements
Alternative option
Payday alternative loans (PALs) are a much more affordable alternative offered by federal credit unions. If you’re a credit union member or can become one, consider a PAL before getting a payday loan.
Pros and cons of payday loans
Payday loans have some serious drawbacks, but they may have a couple of benefits, as well:
Pros:
- No credit check: Unlike with other forms of loans, there’s no credit check required to get a payday loan.
- Immediate funding: Payday loans can typically provide immediate funding.
Cons:
- Exorbitantly high APRs: Payday loans can have APRs well into the triple digits.
- Short repayment terms: Payday loans typically have short repayment terms of two to four weeks — which, coupled with high fees — can make them tough to repay on time.
- Can hurt your credit score if unable to pay off in time: Unpaid loans could end up in collections and hurt your credit score. What is a cash advance?
Learn More: Are Payday Loans Safe?
What is a cash advance?
A cash advance comes in two flavors, via a cash advance app or via your credit card. Both make it easy to borrow money and can be much less expensive than a payday loan.
Cash advance app
Apps don't require a credit check and typically won’t charge interest. Instead, you can expect fees such as a subscription fee, expedited funds fees, and optional tips. However, these fees can equate to APRs on par with payday loans, depending on the app and whether you leave a tip.
You may be able to borrow $100 to $1,000, based on your income and the app. For example, Dave allows up to $500 with no credit check or late fees and the company states you can get your funds in as soon as 5 minutes (with an expedited fund fee). Earnin can offer up to $100 per day (up to $750 per pay period) with no credit check and no fees (unless you expedite funds to your account).
Just like a payday loan, you typically have to repay the advance by your next paycheck.
Credit card cash advance
A cash advance on your credit card allows you to withdraw cash against your credit limit at an ATM or via a check — since you've already been approved for the card, there's no credit check required.
But unlike regular credit card charges, a cash advance immediately starts incurring interest — in other words, there’s no grace period before interest charges kick in. Your cash advance will show up on your next statement, and it’ll be factored into your minimum monthly payment. Cash advances typically have a higher APR than regular credit card transactions.
You’ll also pay a cash advance fee — either a flat fee or a percentage of the transaction — every time you use this service. Getting a cash advance can be an expensive way to borrow money, though usually less expensive than a payday loan and possibly a cash app.
Limits on cash advances vary by credit card company. Some may limit the amount to a percentage of your total credit limit. You can find your cash advance limit on your credit card statement or by calling your credit card company.
Consider a personal loan for bad credit if you need money quickly and don’t want to deal with short repayment terms.
Pros and cons of cash advances
Weigh the following before taking out a cash advance via an app or your credit card.
Pros:
- Immediate funding: Cash advances can give you immediate access to cash.
- No credit check: If you have bad or no credit, you don’t have to worry about a credit check with a cash advance app or an existing credit card.
- Accessible at an ATM or via direct deposit: You don’t need to visit a bank or lender — instead, you can get a cash advance deposited directly into your account or at an ATM with your credit card.
- Lower fees: Credit card advances typically charge lower fees than payday loans. If you don't expedite funds or leave a tip, you could pay few to no fees to use a cash advance app.
- Not secured: Cash advances are unsecured, so you don’t need to put up collateral to access cash.
Cons:
- High APRs and fees: Cash advances can have much higher APRs than regular credit card charges, especially if you expedite the money with a cash advance app.
- Interest accrues immediately: Interest starts accruing the same day you get a cash advance with a credit card.
Check Out: Best Emergency Loans
Payday loans vs. cash advances
Payday loans and cash advances make it easy to access cash, but that accessibility comes at a cost. Below, find details on eligibility requirements, repayment terms, fees, and more for payday loans vs. cash advances.
Alternative options
Payday loans and cash advances aren’t the best way to borrow, in most cases. However, the following options, if available to you, can be both less expensive and less risky:
- Personal loans: A personal loan can take longer to get and may be more difficult to qualify for if you don’t have good credit. But they tend to have lower interest rates, and they’re usually unsecured. Loan amounts typically range from $1,000 to $100,000 or more, with repayment terms from one to seven years. The average interest rate for a 24-month personal loan was 12.33%, according to the Federal Reserve, making them an attractive alternative. Consider a personal loan with a cosigner or a secured personal loan if you have trouble qualifying.
- Payday alternative loans (PALs): If you’ve been a member of a federal credit union for at least one month, you may qualify for a PAL. A PAL is a low-cost, short-term loan offered by certain credit unions for amounts of $200 to $1,000. Terms range from 1 to 6 months. PALs II are another category of payday alternative loans. These loans have maximum amounts of up to $2,000, terms up to 12 months, and immediate eligibility for credit union members (no 1-month waiting period).
- Financial assistance: If you’re really in a bind, you may be eligible for financial assistance from government or nonprofit programs. Start by visiting 211.org to get support and connect with helpful resources.
- Negotiate with creditors: Before taking out a payday loan, cash advance, or personal loan, you may be able to work out a manageable repayment plan directly with your creditors if debt payments are eating up your cash flow. It never hurts to call, explain your situation, and ask what they can do to help. In some cases, they may offer a lower monthly payment or interest rate.
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Payday loans vs. cash advances FAQ
How do interest rates and fees compare for payday loans vs. cash advances?
Both payday loans and cash advances are often expensive ways to borrow, but payday loans generally cost more. Payday loans typically come with a flat rate per $100 you borrow. In most states, these fees equate to a triple-digit APR. Payday loans can also incur late fees or rollover fees. Meanwhile, cash advance apps have fees that can add up to triple-digit APRs, especially if you pay for same-day funds and leave a tip. Credit card cash advances have an associated transaction fee, potential ATM fee, and a typical APR of around 30%.
Can I get a payday loan or cash advance with a low credit score or no credit history?
Payday loans don’t require a credit check, so you can get one with low or no credit. Typically, all you need is proof of income. To get a cash advance, though, you need to either use a cash advance app like Chime or Earnin or have a credit card that provides the service. If you have an existing credit card, the company won’t typically check your credit for an advance. But if you need to apply for a card, it will.
How does taking out a payday loan or cash advance impact my credit score?
Taking out a payday loan generally won’t impact your credit score. However, if you fail to repay the loan and the lender reports your debt to collections, a debt collector might report it to credit reporting agencies. This could end up hurting your credit. Cash advances will increase your credit utilization, which could lower your credit score.
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