Credit card cash advances and payday loans are two different ways to get quick access to cash, but they have distinct features and considerations. Deciding which is better depends on your specific situation and financial needs.
Credit Card Cash Advance:
- What it is: A credit card cash advance allows you to withdraw cash using your credit card at an ATM or a bank.
- Interest Rates and Fees: Typically comes with high-interest rates, often higher than regular credit card purchases, and might include additional fees.
- Repayment: Repaid as part of your credit card balance, subject to the same minimum payment requirements as other credit card transactions.
- Credit Limit: Limited by your credit card’s available credit line, which might have a separate limit for cash advances.
Payday Loan:
- What it is: A payday loan is a short-term, high-cost loan, usually obtained from a storefront lender or online service. These loans are typically based on the borrower’s income.
- Interest Rates and Fees: Often come with extremely high-interest rates and fees, making them a very expensive form of borrowing.
- Repayment: Usually expected on the borrower’s next payday or within a short period, often as a lump sum payment.
- Approval: Easier to obtain than traditional loans, often without stringent credit checks.
Which is Better:
Choosing between the two depends on various factors:
- Cost: Both options can be costly due to high-interest rates and fees. Payday loans usually have higher costs overall due to their exceptionally high APRs.
- Repayment Terms: Credit card cash advances might offer more flexible repayment options compared to payday loans, which often require a lump sum payment within a short period.
- Credit Impact: Both can potentially impact your credit score negatively if not managed properly, but credit card cash advances might have a slightly less severe impact.
In general, neither option is ideal due to their high costs. However, if you have to choose between the two:
- Credit card cash advance might be more manageable if you have a credit card with available credit and need a smaller amount of cash, especially if you can repay it quickly.
- Payday loans might suit those who don’t have access to credit cards or traditional loans but should be considered extremely carefully due to their exorbitant costs and potential to trap borrowers in a cycle of debt.
Ultimately, exploring other borrowing options, seeking financial advice from Matthew Jennings, JD, MBA, EA, RFC®, CEP®, CES™, aka Tax King or finding alternative financial solutions might be wiser choices to avoid high-cost borrowing and potential debt traps.