If you find yourself short on cash, you may need to borrow money quickly to keep up with your bills or to cover an unexpected emergency. When this happens, you may consider a credit card cash advance or a payday loan. Credit card cash advances and payday loans have at least one thing in common: You can have access to money very quickly. So, before deciding on either loan option, it’s helpful to understand some of the key differences between the two.
It’s easy to think that a cash advance and payday loan are the same things, but that’s not the case. We can start to see how they’re different by looking at the definition of each option.
A cash advance is a short term cash loan that you take out through your existing credit card.
A payday loan is a loan that typically comes with few eligibility requirements and a quick turnaround time. Lenders can operate online and/or have physical store locations.
| Cash advance | Payday loan |
|---|---|
| Percentage of your credit limit | Usually $100 to $1,500 |
Payday loans can often throw consumers into a vicious cycle of debt, so these types of loans are regulated in most provinces by the government in order to protect borrowers. You’ll often see limits on how much you can borrow through a payday loan – typically $100 to $1,500, depending on the province or territory you reside in and the lender you go with.
The amount you can borrow through a cash advance is generally limited to a percentage of your credit card’s credit limit. Usually, this comes out to a few hundred dollars. Don’t be surprised if your credit card has daily, weekly and monthly cash advance limits in place. It’s very common to see a maximum cash advance limit of less than $500 a day.
| Cash advance | Payday loan |
|---|---|
| Accrues interest immediately; can carry debt long-term | Accrues interest immediately; paid back in a fixed timeframe |
Unlike credit card purchases, a cash advance will typically start accruing interest immediately. In other words there’s no interest grace period, which you usually get when you use your credit card for normal purchases.
Similarly, a payday loan comes with immediate interest. The key difference is the time horizon for repayment. Some lenders require repayment as early as your next payday, while others will be more flexible with the repayment dates. With a cash advance, you can carry debt long-term, if you wish, as no one is expecting the money back on a set date.
| Province | Max. cost of borrowing a $100 payday loan | Cooling off period to cancel loan | Max. penalty for returned cheque or pre-authorized debit |
|---|---|---|---|
| Alberta | $15 | 2 business days | $25 |
| British Columbia | $15 | 2 business days | $20 |
| Manitoba | $17 | 48 hours excluding Sundays and holidays | $20 |
| New Brunswick | $15 | 48 hours excluding Sundays and holidays | $20 |
| Newfoundland and Labrador | $14 | 2 business days | $20 |
| Nova Scotia | $15 | Next business day (2 days for online loans) | $40 (default penalty) |
| Ontario | $15 | 2 business days | $25 |
| Prince Edward Island | $15 | 2 business days | N/A |
| Quebec | Limit of 35% AIR | N/A | N/A |
| Saskatchewan | $17 | Next business day | $25 |
Yes, as a general rule, credit card issuers have to allocate your payments to the amounts that have the highest interest first. Since cash advances typically have higher interest rates than normal credit card purchases, the money you pay toward your bill will automatically go towards your cash advance balance first.
| Cash advance | Payday loan |
|---|---|
| Around 24% APR, however, can be up to 36% (without calculating additional fees) | Usually between 400% to 750% APR |
For a cash advance, you usually need to pay an upfront fee – for example, $10 or 5% of the amount you take out. Then you pay interest on your cash advance, usually around 24% annual percentage rate (APR), however it can be higher or lower.
For a payday loan, you’re charged an upfront fee based on how much you borrow – typically $15 to $25 per $100 you borrow. Since the repayment window of a payday loan is around two weeks, that works out to an APR of about 400% and up.
That creates a distinct difference between cash advances and payday loans. Theoretically, you could take out a cash advance today and pay it back tomorrow, accruing very little interest. But regardless of when you repay a payday loan, you still pay the same amount in finance charges.
| Cash advance | Payday loan |
|---|---|
| Usually $10 to $20 or 3% to 5% of the transaction, whichever is greater | Finance charge of $15 to $25 per $100 borrowed |
You’ll be charged a fee as soon as you take out a cash advance. You’ll usually find the cash advance fee written in your credit card terms like this: “Either $10 or 5% of the amount of each transaction, whichever is greater.” With a payday loan, you’ll pay a finance charge of around $15 to $25 for every $100 you borrow.
Bottom line: Upfront fees for cash advances are often cheaper than those for payday loans – but remember that you still need to pay interest on a cash advance.
| Cash advance | Payday loan |
|---|---|
| Credit card that allows cash advances | Bank account, valid ID, age and residency. |
To take out a cash advance, you need to be approved for a credit card that allows them. Meanwhile, all you need to obtain a payday loan is a bank account and a valid ID. You will also have to be 18 years of age or the age of majority in your province, as well as a Canadian citizen or permanent resident. Payday loan centers usually don’t run deep credit checks, so payday loans are typically easier to get than cash advances.
Learn about the provincial/territorial payday loan regulations in Canada
Now that you understand the differences between cash advances and payday loans, it’s important to consider the drawbacks of both.
Most people take out cash advances and payday loans when they are in troublesome financial situations – but they often find themselves in deeper debt afterward. We recommend turning to a cash advance or payday loan only in a true financial emergency.
If you’ve decided that a cash advance or a payday loan is the route you’d like to take to solve your immediate need for cash, your ultimate choice between the two will depend on several factors. These factors include:
You can also check out our guide on payday loans to learn more about payday loans and further compare your options.
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