Payday Loans vs Credit Cards

Payday Loans vs Credit Card Cash Advance

Information verified correct on December 11th, 2016

Payday loans and credit card cash advances: Which one is better, and more importantly, which one is worse.

If you find yourself in a situation where you need quick cash, you might find that you have a couple of options to choose from.
If you have a credit card you can simply withdraw cash from an ATM. You also have the choice of applying for a payday loan to have the money transferred to your account on the same day, or sometimes within the hour. Find out which one is better for your needs in this guide.

Sunshine Short Term Offer

Sunshine Short Term Offer

This is a short term loan offer with a fast and easy online application for bad credit borrowers who are employed. You can apply today to get approved for up to $2,000.

  • Loan Amount: $2,000
  • Loan Term: 9 weeks
  • Turnaround Time: 30 Minutes - conditions apply
  • Total Cost of Borrowing $100: 20% of borrowed amount + 4% of borrowed amount each month
  • Bad credit borrowers OK
  • Quick and easy Approval
  • No Credit Checks - Must be employed
    Rates last updated December 11th, 2016
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    Rates last updated December 11th, 2016
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    ME Bank frank Credit Card
    Enjoy a low and consistent interest rate on purchases and cash advances, combined with no annual fee.
    11.99% p.a. $0 p.a. Go to site More info

    Warning about Borrowing

    payday-warningDo you really need a loan today?*

    It can be expensive to borrow small amounts of money and borrowing may not solve your money problems.

    Check your options before you borrow:

    • For information about other options for managing bills and debts, ring 1800 007 007 from anywhere in Australia to talk to a free and independent financial counsellor
    • Talk to your electricity, gas, phone or water provider to see if you can work out a payment plan
    • If you are on government benefits, ask if you can receive an advance from Centrelink: Phone: 13 17 94

    The Government's MoneySmart website shows you how small amount loans work and suggests other options that may help you.

    * This statement is an Australian Government requirement under the National Consumer Credit Protection Act 2009.

    How does a payday loan and credit card cash advance work?

    Both payday loans and credit card cash advances are types of credit that can be used for whatever you need or want. There are no specific restrictions on how you use the funds, making them suitable for a sudden car repair, groceries or even a weekend getaway.

    Payday loans involve you applying with a lender for a specific loan amount. You will be sent the funds, if you're approved, generally within 24 hours. You then make repayments according to the repayment scheduled outline in your contract, with usual terms ranging from 16 days to one year.

    Cash advances are where you withdraw cash from your credit card or transfer money from your credit card to an account. As this is not a purchase you are charged a higher rate, which is usually above 20% p.a. It becomes part of your outstanding balance, of which you have to make a minimum payment monthly to keep the credit account in good standing.

    Which is more expensive?

    Both credit card cash advances and payday loans are costly forms of credit. Receiving an advance from your credit card will set you back between 20-24% p.a. A payday loan of less than $2,000 will cost you an establishment fee that is 20% of the amount you borrow and a 4% monthly fee.

    Keep in mind the cash advance rate is an annual rate whereas the payday loan is not.

    If you pay the cash advance back quickly it can be cheaper, but if you only make the minimum repayment then you may want to consider a payday loan. This is because your ongoing repayments will pay the money back entirely in that set term, whereas the cash advance could be an ongoing debt.

    The differences between payday loans and cash advances

    FeaturesPayday loansCash advance
    Fees20% establishment fee + 4% monthly feeApproximately 1.5-4%
    InterestInterest is charged as fees as aboveApproximately 19-22% p.a.
    TermsVary between 14 days and 12 monthsOngoing line of credit, no set terms
    EligibilityFlexible criteria. Bad credit, Centrelink, unemployed accepted.Need to be employed and have good credit.

    Weighing up your options

    Pros and cons of applying for a payday loan

    • Availability
      Most payday loans require a minimal amount of criteria needed to be approved. This includes income, age and residency requirements.
    • Fast turnaround
      You will usually receive an answer instantly or within 5 minutes, and the money within a day or two.
    • Short terms
      The requirement for these loans is that you pay them back quickly, leaving you with no extra debt to worry about.
    • Fees
      Although the rates are mandated by the government, they still are higher than a typical personal loan would be. Plus the fees can mount up if you are late on a repayment.
    • Overall cost
      In general, the overall amount of money you will spend for this service makes it a non cost-effective way to handle your finances.

    Pros and cons of withdrawing cash with your credit card

    • Accessibility
      There are no additional applications needed with a credit card cash advance. You only need to find an ATM and withdraw the cash you need.
    • Concise billing
      As the cash advance is part of your credit card billing, you won't have the worry of a new account.
    • Flexible repayments
      So long as you don't mind the accrued interest, you can pay off a credit card cash advance at your convenience.
    • Interest rates
      The interest rate charged for a credit card cash advance is considerably higher than what you would pay for your standard personal loan. You'll also accrue interest from the moment you make the cash advance.
    • Overall cost
      Like the payday loan, the overall cost of the cash advance makes it an option you should think twice about before using.

    Credit cards with low cash advance rates

    How to know what to apply for

    Even after understanding both products, you still might wonder which one is right for you. Asking yourself the following might help you decide which is the right application to submit:

    • Do you have bad credit? If your answer is "yes" and you don't already have a credit card, then you may not be eligible to be approved for another one. Review the eligibility criteria of the products you are interested in before submitting your application, but if you are weighing up your options of a credit card and a payday loan and you have bad credit, you may find you are only eligible for the latter.
    • Do you already have a credit card? If you do, check what interest rate you will be charged for taking out the cash advance. Also check how much credit you have left in your account and if it will be sufficient for what you need. You can then use this information (the interest rate) to compare it with your payday loan options and see which one will be more expensive based on when you can repay the money.
    • When will you be able to repay the money? This is an important factor to consider. Payday loans are designed to be paid in the short-term, so before you apply make sure you can afford the repayments set out by the lender. If you aren't sure when you can repay, remember that a credit card cash advance can easily get out of hand if you don't repay it quickly – there is no fixed repayment term and the interest can just keep rolling over costing you a lot of money.

    It’s always important to compare your options before applying for a payday loan or taking cash out on your credit card. Many financial experts advise to explore other avenues before applying for a payday loan or withdrawing money on your credit card. Due diligence is a must with both products.

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    4 Responses to Payday Loans vs Credit Card Cash Advance

    1. Default Gravatar
      kenneth | March 21, 2016

      HELLO

      IAM LOOKING FOR A $100,000.00 LOANS WITH MONTHLY PAYMENTS

      • Staff
        Elizabeth | March 21, 2016

        Hi Kenneth,

        Payday loans are usually for smaller amounts, below $2,000, and there are no loans currently available for comparison on finder.com.au of this size.

        I’m sorry I couldn’t be of more assistance,

        Elizabeth

    2. Default Gravatar
      angie | June 12, 2015

      just wondering how and where you apply online to receive a credit card cash advance can you use your personal bank?

      • Staff
        Elizabeth | June 15, 2015

        Hi Angie,

        Thanks for your question.

        A credit card cash advance involves you withdrawing cash from an ATM using your credit card. To do this, you’ll need to hold a credit card or apply for a card and then withdraw the cash. If, however, you were looking for a cash advance loan, you can compare and apply for one on this page.

        I hope this has helped.

        Thanks,

        Elizabeth

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