Cash Advance Versus Payday Loan: Exploring The Differences

You’re facing an unexpected bill for $500. But you don’t have the money. What do you do?

Cash advances and payday loans are two popular options. Both offer quick access to funds, but they have different structures and repayment terms. To make the best choice — and save yourself money and stress — you have to understand how they work and consider your other options.

Here’s a breakdown of cash advances versus payday loans and the most important details to know.

How do cash advances work?

First, what is a cash advance? It’s a particular kind of small, short-term loan, traditionally from a credit card provider. You withdraw cash from that provider to get an “advance” on your credit. Cash advances are an attractive option because they’re easy to access and don’t require extra approval — you can just withdraw money from an ATM or teller.

Unfortunately, even the best cash advance apps usually carry high interest rates and don’t have a grace period. That means you start owing interest the day you take out the money, while most credit card purchases give you a few weeks before it starts accruing. This makes them costly in the long run. They’re only a good option if you’re confident you can repay quickly.

What are the alternatives?

Earned Wage Access apps get you money faster and with less risk. You don’t borrow against a line of credit. Instead, you access your own money in advance. In most cases, you just need to supply proof of income and employment, and you can access your paycheck before payday.

Interested in earned wage access? Start with EarnIn. Once the app verifies your earnings, you can access your pay before your paycheck actually comes in — up to $100 a day and up to $750 every pay period.

With apps like EarnIn, you can access cash when you need it without worrying about paying interest or high fees. Instead, EarnIn operates on a pay-what-you-choose model, where you can leave a tip for the service. You’ll get paid as you work and build the financial momentum you need to thrive without adding debt.

How do payday loans work?

Now, what’s a payday loan exactly? Payday loans are short-term loans intended to cover unexpected expenses until your next payday.

To get a payday loan, you can visit a payday lending storefront or apply online. You usually have to provide proof of income and personal identification. If you get approved, you receive the loan in cash or by direct deposit. Then, you repay in full — including fees — by your next payday.

Suppose Damon needs $500 to cover a car repair but won't receive his paycheck for another two weeks. He visits a payday lending store and applies for a small loan. The lender approves his application and provides him with $500 in cash. When Damon's next paycheck arrives, he repays the lender $500, plus $50 in additional fees.

Like cash advances, payday loans are risky if you can’t repay right away. They come with high interest rates and fees, and you could find yourself in a dangerous cycle of debt if you continuously can’t pay. So, while these loans offer quick access to cash, use them with caution.

5 key differences between cash advances and payday loans

Some of the most important differences between cash advances and payday loans include:

1. Interest and fees

Payday loans typically come with higher fees and interest than cash advances, which makes them the more expensive option in most cases. But the rise of apps that provide cash advances at low or no charge — as opposed to traditional credit-card cash advances — has driven down the cost of this kind of borrowing.

2. Flexibility

Payday loans are usually structured as short-term loans with fixed repayment terms, often due on your next payday. Cash advances may offer more repayment flexibility, letting you repay the borrowed amount over time or in installments — but they have steep interest rates.

3. Benefits

Payday loans are relatively simple and accessible, making them suitable for borrowers who need funds quickly and have a reliable source of income. But cash advances may work better for those who need funds urgently and can’t wait for approval.

4. Amount

Payday lenders are often willing to loan more money than you might be able to take out as a cash advance. That’s because cash advances can only be as much as your credit limit with your provider and no higher.

5. Providers

Cash advances usually come from credit card providers, while payday loans may come from brick-and-mortar storefronts or payday loan apps.

Cash advances versus payday loans: Which suits you best?

Cash advances typically charge lower fees and interest than payday loans. And they tend to offer more flexible repayment terms. But if you need to borrow a large amount of money, you risk racking up interest while paying back the funds. Plus, the advance takes up a lot of your credit, so you have access to less credit for regular expenses.

Credit checks and scores are another important consideration. Payday loans don’t typically require a high credit score, but if you fail to repay, it may be sent to collections, which can lower your score. Failure to make credit card payments for a cash advance can also harm your credit score.

Ultimately, the choice between cash advances and payday loans depends on your financial situation and preferences. Check out the table below to make a quick, at-a-glance comparison of both options.

3 fast-cash alternatives

If you need money but prefer not to use cash advances or payday loans, here are some alternatives:

1. Personal loans

Personal loans from banks, credit unions, or online lenders can get you larger amounts of money. These loans typically offer more favorable terms and lower interest rates, but they may require a credit check and have stricter eligibility criteria. This means it also takes longer to get approved.

2. Friends and family

If you’re short on a few hundred dollars, don’t be afraid to ask for help. You might be surprised at how willing people are to give you a hand. Reach out to friends and family you trust and be honest about your situation. Before accepting money, just make sure you and your lender are on the same page about when you’ll pay them back and whether you’ll include interest.

3. Side hustles and gig work

Consider supplementing your income by taking on a side hustle or gig work. Platforms like Uber, TaskRabbit, and Upwork offer opportunities to earn extra cash on your own schedule. Whether it's driving for a ridesharing service, freelancing, or completing tasks for others, gig work can provide a source of relatively quick income to help cover unexpected expenses.

4. Earned Wage Access

Besides taking on new work with a side hustle or extra job, Earned Wage Access (EWA) is our favorite way to access to cash when you need it between paychecks. Loans get expensive fast and borrowing from friends and family can impact your most cherished relationships in unforeseen ways. But accessing your own pay with an EWA app like EarnIn leaves your community out of it and skips the high interest and fees giving you more independence and flexibility with your money and life. It’s really a win-win-win.

Experience financial flexibility with EarnIn

If you need cash quickly, taking out a cash advance or payday loan usually isn’t worth the risk — not when EarnIn lets you access the money you’ve already made without interest, membership fees, or credit checks. You can get up to $100/day and up to $750/pay period of money you’ve already earned, so you can move forward with your life at your speed

Ready to get paid today? Discover EarnIn’s Cash Out tool now.