- A cash advance is a loan made by an employer, friend or associate that is designed as an advance on the person's paycheck or another form of income that he expects to receive. This advance may be contractually secured -- for example, a book author will often receive an advance on his book -- or it may be given informally, with the verbal promise that the money will be returned at a later date.
- A payday loan is a loan from a private lender to an individual, usually at an extremely high rate of interest. In return for the loan, which must be paid back within a short period of time, a person is required to provide a bank account number or a predated check, which will be used to pay back both a high rate of interest and additional processing fees.
- The advantage of taking out a payday loan is that the money is provided with clear conditions. By contrast, money borrowed from an employer or relative is not contractually secured; as such, a dispute may arise. The advantage to a cash advance is that the party providing the cash advance will usually not require the borrower to pay back the money with interest. This can make is significantly cheaper than a payday loan.
- The downside to a payday loan is its expense. A payday loan, particularly one that is not paid off on time, can become extremely expensive. If the loan is paid late, it may be allowed to roll over to another pay period and collect another round of interest. The downside to a cash advance is that it may not be available to an individual. And, if it is, it may come with costly penalty clauses if the person fails to fulfill the advance's conditions.
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