Difference between payday loans and cash advances
People often interchangeably use the two sub categories of unsecured loans; pay day loans and cash advances. These loans are perhaps the most common options available for short term lending. These terms are types of unsecured personal loans, with different terms and conditions applied. In this article we will examine the difference in both the terminologies their pros and cons in general.
Pay day loans
Pay day loans also called as “payday advances” and “online personal loans” are one of the types of personal loans; these are unsecured loans which mean that there is no collateral involved for lending finances and mostly no requirement for a credit check for approval of loan. These loans are granted to individuals on the basis of their salaries and are designed in such a way that corresponds your pay receiving dates for repayment. Sometimes there can be multiple installments but usually, whole amount is to be paid back with the interest rate in single payment.
An online pay day loan also requires that your bank account should be in a good standing it is because the loans are transferred to your account directly and on the due date of repayment the money is automatically deducted from your bank account each month or so.
The amount of loans you can obtain in a payday loan depends on your income level. Most of the sites giving online personal loans require a personal to be earning around $1000 monthly. People who have relatively higher income levels are more eligible in getting these loans and can borrow more money as compared to that of less earning group. The lenders of payday loans usually do not require credit checks but in some countries lenders can access the national database for checking borrower’s other loans. A lender may deny your request for a loan due to your previous records. Otherwise, your current bankruptcy or unstable bank account in some cases may stop a lender for lending you a loan.
Cash advances are basically of two types and have different procedure for lending money and repayment system. The first type of cash advance is a term that is often synonymously used with pay day loans for referring to an advance on your paycheck. In this type, the cash advance is more or less structured in the same way as a payday loan. Means you can borrow money depending upon your income and repayment is designed to be taken on the days in which you get your salary.
The second type of cash advances are based on line of card or credit card. It is not based on your monthly income rather on your available credit limit. This type of cash advance is a service that is provided by most of the credit card issuers. It allows the cardholders to withdraw money through ATM or through counter at any financial agency but there is a certain limit up to which you can withdraw money/cash. Cash advances borrowers often suffer from a fee on the amount that is borrowed. Interest rate is also higher as compared to any other credit card transactions, as it compounds daily starting from the very first day of cash borrowed.
Pros and cons
Following are the general observed pros and cons of payday loans.
There isn’t any collateral involved.
To qualify for a payday loan is not difficult and your income can be a proof for approval of your loan.
It limits your amount of money to be borrowed which can help you to prevent the debt cycle.
The information of clients remains confidential.
These loans provide only short-term solution.
Many legal terminologies come into play while availing such type of loans.
Interest rates are very high and additional fee is also to be given for availing these types of loans.
You can face many additional hardships in terms of finances if you are unable to repay your loans on the due date.
An individual understand before acquiring these loans that personal loans; payday loan or cash advances, are only a short term solution for your financial issues and if not managed properly they can over-burden an individual in terms of debts.