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May 2, 2020
There are various types of short-term loans. Each one has different features, terms, and conditions. It is often confusing to decide which type of loan, you should take out in case of an emergency and when you have to fund planned expenses. As far as it is about payday loans, you all know that such loans can help you finance short-term costs only. If you are running out of money and something is up with your laptop, payday loans will be an ideal option.
However, most of the people are often confused between payday loans and cash advances. They use these terms synonymously. Well, if you are taking out cash advances thinking that they are like payday loans, you should stop. It can be deadly to your finances. Here you can get to know how these funding sources are different from each other.
Payday loans
Payday loans in Belgium refer to short-term loans. They are like unsecured loans as they do not require you to pay collateral to borrow money, nor do they need a guarantor even if you have a bad credit rating. As the name suggests, you are required to pay the loan when you receive your next paycheque.
The length of these loans cannot be more than 14 days, or sometimes it can be a month. Further, the borrowing limit cannot be too much because of the short duration. Lenders do not discriminate between good credit and bad credit score, but you will end up bearing high-interest rates f your credit report is not stellar.
The interest rates for payday loans usually are higher than other short-term loans. As these loans carry a small amount, you will have to pay it off in a lump sum. If you make a default, the lender will impose an interest penalty and late payment fees. You will likely end up rolling over a loan that continues to mount up your debt.
Cash advances
Cash advances are also like a short-term loan, but they are not like online payday loans. Such kinds of loans are generally available to credit cardholders. It can allow you to withdraw funds using your credit card. In other words, cash advances will enable you to borrow money against the line of credit. You can confuse it with standard credit card lending.
When you purchase with your credit card, you will have a grace period. It means you can pay the money back without interest. If the interest-free period expires, interest will start accruing. A cash advance does not allow you to have an interest-free period. It means interest will begin accruing as soon as you withdraw cash.
Interest rates for loans against the line of credit are higher than payday loans, and therefore, they are more expensive.
How much can you borrow?
One of the significant differences between payday loans and cash advances is the size. Payday loans work like a conventional loan, and hence the borrowing limit can be as minimum as €50, and the maximum can be €1,000. The amount can go up only if you have built a history with the lender.
Cash advances, on the contrary, allow you to borrow more money. Of course, the credit card company will determine the borrowing limit against your credit card limit. However, it can be flexible if you have built a history with the company.
Interest rates and the fees
Both interest rates and fees vary for both types of loans. Whether you take out payday loans or cash advances, you will have to pay processing fees. The fees for cash advances can be between €20 and €30 depending on the credit card company, and for payday loans, it can be between €15 and €20 for every €100 borrowed.
APR involves the processing and upfront fees along with interest rates. APR for cash advances can be between 24% and 30%, while it will be between 22% and 30%. Interest accrues immediately in case of cash advances while it happens in case of payday loans when you make a default.
Now you have got to know the significant difference between cash advances and payday loans. It does not discourage you from applying for cash advances, but you should be careful with your needs. It will be better if you try to settle all your dues immediately.
