Types of Cash Advances: Credit Card vs. Payday vs. Installment Loans

Overview of Cash Advance Types

A cash advance is a short-term loan or withdrawal of funds against a credit card's available limit, a future paycheck, or future sales. This broad definition covers several distinct products, from credit card cash advances to payday loans, installment loans, and even merchant cash advances for businesses. Each type comes with its own features, costs, and repayment structures.

The table below summarizes the key types of cash advances and their distinguishing characteristics. The details are drawn from regulatory and financial sources to give you a clear basis for comparison.

• Credit card cash advances: Borrow against your credit card's available limit; higher APRs and immediate interest accrual.
• Payday loans: Small, short-term loans due on your next payday, often with high fees that can translate to very high APRs.
• Installment loans: Repaid through fixed installment payments over a set term.
• Cash advance apps (earned wage access): Access a portion of your earned wages before payday, often with no interest but possible expedited transfer fees.
• Merchant cash advances: Business financing repaid through a percentage of future credit card sales.
• Deposit advances: Small-dollar loans repaid from your next direct deposit, typically with high fees.

Sources: Consumer Financial Protection Bureau, MoneyLion, Investopedia, Check City

Credit Card Cash Advances

A credit card cash advance allows you to obtain cash or cash equivalents using your credit card's available credit limit. This includes ATM withdrawals, but also transactions like buying cryptocurrency, making peer-to-peer transfers, purchasing lottery tickets, or online gambling—some issuers explicitly treat these as cash advances.

Cash advances on credit cards typically do not qualify for a grace period, meaning interest starts accruing immediately from the transaction date. The APR for cash advances is usually higher than the purchase APR, often around 30% for major issuers according to CFPB analysis.

In addition to the higher APR, you'll often pay a transaction fee: frequently the greater of $10 or 5% of the amount. In 2022, major credit card issuers charged consumers $717 million in fees on $3.6 billion in cash advance volume, an average fee of about $1 per $19 spent.

• Immediate funding: You can typically get cash from an ATM or bank teller.
• No grace period: Interest accrues from the day of the transaction.
• Higher APR: Often around 30% for major issuers.
• Transaction fee: Often the greater of $10 or 5% of the amount.
• Credit limit: Usually up to a percentage of your total credit limit, often 30%.
• Credit impact: Can increase your credit utilization ratio, which may lower your credit score.

Sources: Consumer Financial Protection Bureau, Federal Deposit Insurance Corporation, Investopedia, PayPal

Payday Loans

A payday loan is a small, short-term loan typically due in full on your next payday. These loans are often easy to obtain without a credit check, but they come with high fees that can translate to APRs of 400% or more.

Payday lenders commonly charge a fee of $10 to $30 per $100 borrowed, which can annualize to roughly 400% APR. The loan amount is usually under $500, and funding can be same-day or next business day.

• Lump-sum repayment: Due on your next payday.
• High fees: $10–$30 per $100 borrowed.
• APR can exceed 400%.
• Credit check may not be required.
• State restrictions: Payday loans are outlawed or restricted in many states.

Sources: MoneyLion, Tilt, Investopedia, ACE Cash Express

Installment Loans

An installment loan as a form of cash advance is repaid through fixed installment payments over a set term. This structure allows you to pay back the loan in predictable amounts rather than in one lump sum.

Because installment loans are repaid over time, the individual payments may be more manageable than a lump-sum payday loan, but the total cost can vary based on the interest rate, fees, and loan term. The evidence available does not provide specific APR or fee ranges for installment loans, so terms and costs vary by lender.

• Repayment via fixed installments.
• Predictable payment schedule.
• Terms and costs vary by lender.

Sources: Check City

Comparing Key Features of Cash Advance Types

The following table compares the key features of major cash advance types based on evidence from the CFPB, FDIC, Federal Reserve, and other sources.

Sources: Consumer Financial Protection Bureau, Federal Reserve Board, Office of the Comptroller of the Currency, Tilt, Check City, National Credit Partners

Other Cash Advance Types

Beyond the main categories, there are other products that fall under the cash advance umbrella, each with its own repayment mechanism.

• Cash advance apps (earned wage access): Access a portion of earned wages before payday, often with little to no interest, but may charge expedited transfer fees or subscription fees. These products are distinct from payday loans and are often integrated with employer payroll systems.
• Merchant cash advances: A business financing product where a business receives a lump sum and repays it through a percentage of future credit card sales. Terms are often shorter than 12 months, and costs are expressed as a factor rate rather than an APR.
• Deposit advances: A small-dollar, short-term loan or line of credit repaid from the customer's next direct deposit, typically with high fees, as noted in OCC guidance.
• Tax refund advances: A cash advance that allows taxpayers to receive funds from their expected tax refund before the IRS processes the return.
• Title loans: A type of cash advance where a borrower uses a vehicle's title as collateral to secure loan funds.

Sources: Consumer Financial Protection Bureau, Federal Reserve Board, Office of the Comptroller of the Currency, Check City, Swoop Funding, National Credit Partners

How to Choose the Right Type

Choosing the right type of cash advance depends on your specific needs, your financial situation, and the costs involved. Here are some decision criteria to consider:

If you have a credit card with available credit, a credit card cash advance may be the fastest option, but be prepared for the higher APR and immediate interest. If you need a small amount and can repay it by your next payday, a payday loan might be available, but be aware of the very high fees and state restrictions. For larger amounts or longer repayment periods, an installment loan may offer fixed payments, but costs vary. Cash advance apps can be a lower-cost alternative if you need a small amount quickly, especially if you can wait a few days for free transfer. For businesses, merchant cash advances provide quick funding but at a cost often expressed as a factor rate, not APR.

• Consider the total cost: APR and fees significantly affect affordability.
• Repayment flexibility: Can you repay in a lump sum or do you need installments?
• Speed: How quickly do you need the funds?
• Credit impact: How might the product affect your credit score?
• State regulations: Some types, like payday loans, are restricted in many states.

Sources: Consumer Financial Protection Bureau, MoneyLion, Tilt, Investopedia