Short-term lending is a financial activity that flourishes in an environment of economic uncertainty. When other social institutions fail to meet the legitimate needs of a population, private lenders often fill in these gaps. Customers usually take out loans to pay for necessities. Cash advances pay for food, electricity, vehicle college expenses, gas and emergency supplies. There are no restrictions on how the money can be spent, which provides the flexibility necessary to meet a variety of obligations.
The terms used to describe a cash advance loans and payday loans can seem interchangeable, but they are slightly different. Lenders are bound only by the rules of their governing jurisdiction, and there are currently no universal standards regulating this growing industry.
This term is descriptive, and it normally refers to the practice of taking out a loan against a future paycheck. There are minimal requirements needed for approval, which makes these loans relatively easy to obtain. However, some customers still find it challenging to meet the minimum prerequisites. These might include documents that prove the borrower has a bank account, proof of income or a current address. Since there are no consistent laws across all jurisdictions regarding lending practices, the requirements imposed upon a borrower cannot be standardized. For an unbiased view of payday lending take a look at this report from Pew.
A cash advance is similar to a payday loan, but this term generally refers to a cash withdrawal that is secured against another source of credit. For example, credit card companies may offer their customers the opportunity to withdraw cash from an ATM or a bank teller. The interest rate on a cash advance is higher than the rates set by the credit card for purchasing merchandise. There are usually no grace periods for repayment, and late fees tend to be unforgiving.
Although payday advances are synonymous with payday loans, some employers use this term as a way of describing the practice of paying employees in advance. When applying for a payday advance from a market-based lender, proof of employment is usually required. The borrower must agree to all of the terms including interest rates, fees and late-payment charges.