The Differences Between Payday Loans and Cash Advances In the USA

If you’re looking into unsecured loans online, you might notice a lot of different terms being used for the service.

One type of personal loan is payday loans, which is usually for a small amount of cash ranging between $100 and $1000 that has to be paid back in full on your next payday with interest. Personal loans can also be for larger amounts and the payments may be stretched out over a longer period of time.

If you are interested in obtaining a short term loan to help with your immediate expenses, check out the best sites for online payday loans in the USA.

Payday Loans

Payday loans (also called “payday advances” and "online personal loans") amongst other names, are unsecured loans, meaning that there is no collateral and usually no credit check required for approval. Payday loans are granted based on your income and are designed to be paid back on a specified date that corresponds to your payday. Rarely they can be paid back in multiple payments, but usually you are required to pay back the entire amount plus interest in one payment.

An online payday loan additionally requires that you have a bank account in good standing because the money is transferred directly into your account and your repayment is deducted electronically on the due date. This is in contrast to a payday loan from a storefront, which generally requires that you provide a post-dated check that will be cashed or deposited on your next payday.

The maximum payday loan you can obtain generally depends on your income. Many of the sites for online personal loans require you to make a minimum monthly income of around $1000. People who have a much higher verifiable income may be able to borrow more money. Payday lenders usually do not perform credit checks, but there is a national database in the U.S. through which lenders can check whether you have other short-term loans. Some lenders will deny you a loan if you have any unpaid loans with other lenders. Even if your credit score is considered good, you will also typically be denied a payday loan if you are currently in bankruptcy and in some cases if you have ever filed for bankruptcy.

Two Types of Cash Advances

The term “cash advance” is sometimes used together with “payday loan” to refer to an advance on your paycheck. This type of cash advance is structured the same way as a payday loan or online personal loan, in that the maximum amount you can borrow depends on your income. Cash advances are designed to be repaid on your next payday or within one month.

The other type of cash advance is based on a credit card or line of credit. This type of cash advance is based on your available credit limit on a credit card rather than your monthly income. A credit card cash advance is usually treated just like a purchase made with a credit card, so the repayment terms follow the policies of your credit card. A cash advance on a credit card may or may not offer you a better deal than a payday loan depending on your credit rating and the terms of your credit contract. 

Some credit card companies charge higher interest on cash advances than on standard purchases.

In general, unsecured loans of any type (including payday loans, online personal loans, payday advances and so forth) come with much higher interest rates than secured loans or cash advances on credit cards. 

This is because the lender for an unsecured loan assumes a much higher risk of not being repaid. Some of the sites on our lineup for online personal loans offer lower interest rates to repeat customers with a history of prompt repayment because they have demonstrated that they are a lower risk.