Cash advances and payday loans are the most popular lending options offered to consumers. These two terms are often used as synonyms.
What Are Cash Advance and Payday Loan?
A cash advance can be received through a credit card service or a credit line offered by a financial institution. Payday loans are, as a rule, borrowed on a post-dated check cashed on borrowers’ upcoming payday.
Both payday and cashadvance loans are loans for a short time. The borrower pays a fee to receive the money. The loan can be borrowed for even a week or two. The borrower can ask for more time to pay the bills.The lenders must inform borrowersabout their rights, loan costs, rates, and fees. How do these loans work?
- The borrower gives the lender a check for the amount he/she you needs to borrow(plus a fee).
- The lender keeps the check and gives the borrower cash (less the fee they charge).
- On the next payday, the borrower must pay the lender in cash. The money owed includes the amount borrowed and the fee.
The Costs of the Loans
Payday and cash advance loans can be quite expensive. Service members and their dependents are protected by law. The law puts limitations on the interest rates on payday loans.
Most loans require APR or an annual percentage rate. The latter implies how much it costs the borrowerto receive money for 1 year. The APR on payday and cash advance loans can be rather high.However, the APR on payday loans cannot go beyond 36%.
The annual percentage rate is based on:
- The amount of money borrowed
- The monthly finance charge or interest rate
- The sum paid in fees
- The time the money is borrowed for
How to Choose the Right Option?
To choose between a payday loan and a cash advance, you should find out:
- The APR
- The fees
- How soon you must repay the amount
- What will happen if you have difficulty repaying
With reliable loan providers like First American Merchant (FAM), merchants can get a cash advance to start and grow their business. Merchant cash advance from FAM can be approved for credit scores below 500. You can receive your funds within 72 hours from application. FAM provides simple and flexible programs for merchants of all types. No tax returns or financials are required.
If you don’t have enough resources to pay the lender the money owed, you can borrow the money for another 2 weeks. This is known as a “rollover” or “rolling over” the loan. For this, you mustpayanother fee. Rolling over the loan for several times, you must pay a lot to borrow the sum. However, it’ll become more difficult to return to the point you started.
Compare the pros and cons of both options and choose what is best for you.