What Is A Cash Advance? Is It Different From A Payday Loan?
A payday loan is a type of cash advance, but it is very important for you to understand that all types of cash advances are not payday loans. In other words, you can say that cash advances that you borrow from payday lenders are payday loans, but if you are getting such an advance from any other financial institution, such as a credit union, bank or check cashing agencies, it cannot be termed as a payday loan. Following is a brief rundown on some of the important points in this regard that will help you understand the difference between the two..
Cash Advance From Payday Lenders
When you borrow a cash advance from a payday loan company, you are charged a very high rate of interest for a very small amount of loan that is issued to you for just a couple of weeks, with the next pay day as your due date for repayment. You will be required to authorize your lender to debit your bank account directly on the due date for the repayment amount (principal amount plus interest and other charges). Alternatively, lenders may require you to deposit a post-dated check, which they send for collection to your bank on the scheduled due date. If the check bounces or the debit authorization request is dishonored by the bank because of non-sufficient fund in your account, it is treated as a criminal offence, for which your lenders can take legal actions against you. Besides that, when you default on this type of cash advances, the penalty charges keep on multiplying at the same high rate until you pay off the eventual outstanding debt balance in full. As you can see, this type of cash advance, which is just another name for payday loan, can be extremely risky and very expensive.
Cash Advance From Check Cashing Agencies
There are many check cashing agencies that offer you instant cash in advance if you give them a post-dated check. Though they may not be registered as payday lenders, they often follow the same process. The interest rate is again very high and other provisions are also equally bad. The only thing that differentiates them from payday lenders is that they do not require the date on the checks to be the date of your next pay day. it can be any date, but in general, the overall repayment period does not exceed one month. This option is also not advisable unless you are in a state that have imposed low rate cap on such agencies. So, you must look into your state laws first. If you are residing in one of those states where check cash agencies are allowed to offer this type of cash advance services provided they charge a very low rate of interest, you can consider this option, but otherwise, it can be risky. You must do your calculations thoroughly in advance.
There can be various other forms of cash advance also, such as the ones that are offered by banks and credit unions. You can get a cash advance even through your credit card. Therefore, technically speaking, the term ‘cash advance’ does not always necessarily mean a ‘payday loan’.