Cash Advance vs. Payday Loan: What Is the Real Difference?

A cash advance allows you to borrow cash against your credit card limit or earned income. A payday loan is a small-dollar, short-term loan typically provided by a specialty lender. Both are fast ways to get cash, but can cost you a lot.

Here's how to decide which one is right for you.

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Key Takeaways

• Cash advances and payday loans both offer fast access to cash, but payday loans are significantly more expensive. Payday loan annual percentage rates (APRs) can reach 400%, compared to 20% to 30% for credit card cash advances and minimal fees for cash advance apps.

• Cash advance apps are the cheapest of the three options. They typically charge a small express fee and an optional tip, with no interest and no credit check required.

• Missing a payment on either option can make things worse quickly. Payday loan rollovers add new fees each cycle, while missed credit card payments can hurt your credit score and trigger late fees.

• Less expensive alternatives exist if you have time to explore them. Payday alternative loans (PALs) from credit unions, personal loans and employer paycheck advances all offer lower costs and more manageable repayment terms.

Summary generated by AI, verified by MoneyLion editors

Key Differences Between Cash Advances and Payday Loans

Cash Advance vs. Payday Loan Costs

Cash advances and payday loans don’t differ by much when it comes to funding. However, they are different in terms of final cost.

Here's a look at the estimated costs between a cash advance and a payday loan.

• If you borrow $200, it will cost you roughly $12 with a credit card cash advance.

• Borrowing $200 with a cash advance app may cost you $6.

• With a payday loan, you can expect to pay $30 when borrowing $200.

Rollovers or Instant Fees Increase Costs

A payday loan becomes more expensive if you’re unable to pay the loan on time. The lender will give you the option to “rollover” for another two weeks. Keep in mind, that you will pay another $30 fee for the additional time.

How Does Repayment Work?

Credit Card Cash Advances

For a credit card cash advance, there’s no separate due date. Your cash advance amount rolls into your regular credit card balance.

One factor to note is that interest starts accruing immediately and can be as high as 30% APR.

• Due dates: No specific due date — rolled into your credit card balance

• Automatic repayment: Will only be triggered if you’ve set up automatic repayment

• Overdraft or late risks: Missing your minimum payment is considered a default and can hurt your credit score.

• Credit impact: The balance can have an impact on your credit utilization and your credit score.

Cash Advance Apps

Cash advance apps are set up to withdraw the amount owed on your next paycheck date. It’s usually timed for when your direct deposit hits.

• Due dates: Usually timed to withdraw when your paycheck hits

• Automatic repayment: Funds are automatically pulled at your next paycheck date.

• Overdraft or late risks: You risk an overdraft fee from your bank if you don’t have enough funds to cover what you owe.

• Credit impact: Cash advance apps don’t report to the bureaus, so it won’t impact your credit score.

Payday Loans

Repayment on a payday loan is due on your next pay day. This is usually two to four weeks from the date of your loan. Lenders will require authorization from you to withdraw from your bank account.

• Due dates: Timed to your next paycheck date

• Automatic repayment: The withdrawal will be made automatically from your bank account.

• Overdraft or late risks: You may pay overdraft fees if you don’t have enough funds to cover the amount.

• Credit impact: On-time payments aren’t reported, but if your account is sent into collections, it could have an adverse impact.

Pros and Cons of Cash Advances and Payday Loans

How To Apply for a Cash Advance or Payday Loan

Credit Score Requirements

• Credit checks aren't required for cash advances or a payday loans.

• You typically need at least fair credit to get an unsecured credit card.

• You'll need good credit to get more favorable APRs and a higher credit limit.

Documents Needed

• Government-issued ID, like a passport or driver's license

• Bank or credit card account information

Where To Apply

• For cash advances, consider ATMs, banks, credit unions, financial institution websites or banking mobile apps.

• For payday lenders, look for stores or online options.

How Long It Takes

• Minutes to hours

• Generally speaking, you walk into a provider's branch or storefront and walk out with your funds.

How To Choose the Right Option

Choose a Credit Card Cash Advance

• If you need more than $500

• If you have a credit card with an available balance

• If you need physical cash

• If you want a lower APR compared to a cash app or a payday loan

Choose a Credit Card Cash App

• If you have a bank account with a steady direct deposit

• If you want to avoid high interest or APRs

• If you need less than $500

• If your credit card is maxed out

Choose a Payday Loan

• If you have no credit card or bank account access

• If you have no other borrowing options

• If you want a small amount and don’t need it instantly

• If you know you can repay the amount in a timely manner

State Rules and Payday Loan Restrictions

Payday loans are regulated by state laws. The availability, rules and costs of payday loans vary from state to state.

• Some states don’t allow payday loans and consider them illegal.

• Other states allow payday loans but with a strict interest cap on the loan at a maximum of 36% APR.

To find out if payday loans are allowed in your state, check the respective government websites.

Alternatives to Payday Loans and Cash Advances

Payday loans and cash advances aren't always the best choice. Take a look at these alternatives and find out which one works best for you:

Final Thoughts on Payday Loans and Cash Advances

• Payday loans and cash advances can be convenient for financial emergencies, but they always come with a cost.

• A cash advance app will be less costly than a payday loan.

• Missing a repayment can tack on additional fees and overdrafts and can send your account into collections if you’re not careful.

• State laws govern payday loans, so find out if they’re available where you live and how much they cost.

• There are cheaper alternatives to payday loans and cash advances, but these options will require credit checks.

FAQs

Do cash advances have a grace period?

No, cash advances do not have a grace period. You start accruing interest immediately.

Do payday loans affect your credit score?

Payday loans don’t affect your credit score directly. However, if you miss payments, this may be reported to credit bureaus if it goes into collections.

What happens if you can’t repay a payday loan?

The lender may withdraw from your account regardless of whether or not you have the funds to cover it. This could trigger overdraft fees on your bank account.

Are rollovers legal?

It depends on the state. Some states allow rollovers, while others don’t.

Is tipping on cash advance apps required?

They are typically optional.

Which option is cheaper?

Cash advance apps are usually the cheapest option.

Key Terms

• Cash advance: A way to borrow cash against your credit card limit or earned income. Credit card cash advances begin accruing interest immediately with no grace period, while cash advance apps typically provide access to wages already earned.

• Payday loan: A small-dollar, short-term loan typically due on your next payday. Payday loans carry some of the highest APRs of any borrowing option, often reaching 400%.

• Rollover: A payday loan feature that extends the repayment date in exchange for an additional fee. Each rollover adds new costs without reducing the original balance, making it easy to fall into a debt cycle.

• Credit utilization ratio: The percentage of your available revolving credit currently in use. Credit card cash advances increase this ratio, which can negatively affect your credit score.

• PAL: A small-dollar loan offered by credit unions with APRs capped at 28%. PALs offer a lower-cost substitute for both payday loans and cash advances with more manageable repayment terms.

Summary generated by AI, verified by MoneyLion editors

Sources

• Consumer Financial Protection Bureau. 2024. "What is a payday loan?"

• Consumer Financial Protection Bureau. 2024. "What are the costs and fees for a payday loan?"

Jeanine Skowronski contributed to the reporting for this article.