Heavyweight Loan Showdown (1 of 3) : Credit Card Cash Advances VS. Payday Cash Advances

Heavyweight Showdown

If you need fast cash, you have options. While some are safe, most are dangerous and predatory. In the world of heavyweight lenders, who’s the baddest of the bad?

In the left corner we have credit card cash advances: A short-term loan product offered through most credit card providers–and a way to get fast cash at a high cost.

And in the right corner we have payday cash advances: Another high-dollar, short-term loan offered to borrowers in tough financial situations.

It seems like an even match-up. Let’s see which of these costly loans has what it takes to make it all 12 rounds and claim the title of Most Dangerous Loan.

Round 1

A payday cash advance is a small and expensive loan that people use to make it to their next paycheck. To get a payday cash advance, a borrower gives their lender a post-dated check, or access to their checking account. The check will be for the amount of money they’re borrowing, plus interest and any additional fees. The borrower then receives a cash loan that’s usually due back in two weeks, or on the borrower’s next payday. These loans are ferocious, and they’re coming out of the corner strong.

Credit card cash advances won’t go down without a fight however. This type of loan draws cash from your credit card balance. This can be done at an ATM or with a bank teller. There are usually several fees involved, and the interest is also 8.5% higher than normal credit card purchases.[1] It’s those tall interest rates and fees that make credit card cash advances a formidable opponent.

Round 2

Payday cash advances are taking jab after jab from credit card cash advances. If you withdraw cash using your credit card, don’t expect the average APR of 15%… more like 23.54%. Jab. You’ll also see additional fees like a “finance charge” or “ATM fee”. Jab. But payday advances don’t seem to be phased by these punches.

Now payday advances are throwing round-house punches. The average APR for a payday cash advance can be anywhere between 390% and 780% depending on where you live. Different states have different laws and regulations on payday loans.[2] But the average payday borrower will pay over $450 to borrow $350.[3] A devastating blow.

Round 3

The most dangerous aspect of a credit card cash advance is their grace period… There isn’t one. This means the interest begins building up right away. It’s the powerful uppercut of credit card cash advances, and it knocks payday advances to the ground. But not for long.

Payday advances pop right back up, spits out its mouthguard, and keeps fighting with more ferocity than ever. Payday advances take advantage of borrowers through a practice known as “rollover”. To rollover a loan means the lender extends the loan another term, and charges additional fees to do it. 76% of payday loans are taken out within two weeks of a previous payday loan. And people who use these loans take out an average of 8 to 13 loans per year with the same lender.[2] This is a stunning barrage of jabs, left hooks and uppercuts. It looks like these two are battling to a standstill!

The Most Dangerous Loan

These brutal loans have battled to a draw. They’re both expensive, predatory and worth avoiding. Credit Card Cash Advances are a bad habit to fall into and Payday Advances are a quick way to lose control of your finances. Our advice is to steer clear of both of these loans.

Instead, consider a safe, reliable personal installment loan from a reputable lender like OppLoans. If you’re on the ropes financially, we can help. Click below to apply for a loan today!

Read the other parts of the series:

References:

[1] Kossman, Sienna. “2015 Cash Advance Survey”CreditCards.com Accessed May 13, 2016.

[2] “How Payday Loans Work.” Payday Loan Consumer Information. PaydayLoanInfo.org Accessed May 13, 2016.

[3] Standaert, Diane. “Payday Loan Quick Facts: Debt Trap by Design” ResponsibleLending.org Accessed May 13, 2016.

Blog Series: Heavyweight Loan Showdown
Part 1: Credit Card Cash Advances VS. Payday Cash Advances
Part 2: Credit Card Cash Advances VS. Employer Cash Advances
Part 3: Credit Card Cash Advances VS. Pawn Shop Loans

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