Payday loan VS cash advance- what is the difference?


When you have a financial emergency or need, you do not have time to debate on which lender to get your money from. Taking out a loan depends on the use and the terms of the lender. A payday loan is more convenient during a financial crisis that needs an immediate attention while cash is helpful when you want to secure your business.

The purpose of the loan

Most People take out cash advance for business related issues. Merchant cash advance can provide you with enough funds to start a business, boost your business of fund any business related issue you may have. Companies normally look at the credit when giving out a cash advance for business but there are companies willing to overlook a slightly poor credit report

At first, payday loan were created as emergency funding. When you have a financial emergency that need immediate attention, you can take out a payday loan. Such emergencies include bills, loan due date and accidents. Some lenders need legitimate reasons before they approve a payday loan request.

The requirements

They amount of cash advance you receive will depend on the standards of the lender. You require identification, credit card report, proof of income and consistent job, tax documents and collateral. To apply for a business cash advance, your primary transaction should be done using credit and debit cards and collection of cash through paycheck. Lenders always want an estimate of how much money goes around in your business.

The requirements for a payday loan are simple. If you have an identification, proof of income and a working bank account, you are most likely to eligible for a payday loan.

Money restrictions

The amount you can borrow for a cash advance depends on your income or revenue. Most lenders give out 50 percent of your business’s monthly revenue. They make sure that the money is not overwhelming on your commitments.

Payday loans face serious legislative restriction form the government. A lender can only give out a maximum amount that is approved by the government. The amount of money you get from a payday loan lender depends on their regulations. Some lenders have strict regulations while others will only need a checking account

Loan repayment, interest and additional fees

Merchant cash advance repayment involves selling a percentage of your credit card or debit sales to the lender. Whenever you make a sale, you repay the lender in the percentage as per your agreement.  The interest rates of a cash advance do not increase if you exceed the repayment time. You agree to pay back the amount plus interest at a fixed rate.

For a payday loan, you are supposed to clear the payments on your next paycheck. The lender can set the loan expiry from two weeks to three months. You are supposed you make the repayments through check or deposits before the expiry date. The interest rates of a payday loan are imposed immediately you get the deposit for the loan. if you do not make the payments on time, the interest rates will begin to grow

Final word

Taking a loan is a big decision and should not be taken lightly. Ensure you reason is valid and you can afford repayment before taking on a loan.