Credit card cash advances vs payday loans: what’s the difference?

Compare their differences to find out which one best suits your needs.

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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.

⚠️ Warning: Be cautious with payday loans

Payday loans are expensive. If you're experiencing financial hardship and would like to speak to someone for free financial counselling, you can call Credit Counselling Canada from 8:00am to 5:00pm Monday to Friday at +1 866-398-5999.

Consider these alternatives before applying for a payday loan:

  • Contact your creditors. Speak with creditors or your electricity, gas, phone or water providers about extending payment due dates or working out a new payment plan.
  • Consider a personal loan. A personal loan usually comes with much lower interest rates than a payday loan.
  • Pay with credit card. While not a long term solution, paying with credit card can help cover emergency expenses. You’ll need to pay off the balance before it accrues interest.
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  • Minimum loan amount:
  • Maximum loan amount: $1,500
  • Interest Rate: Varies by Province
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By definition

A cash advance is a short term cash loan that you take out through your existing credit card.

A payday loan is a short term loan that typically comes with few eligibility requirements and a quick turnaround time. Lenders can operate online and/or have physical store locations.

How much can you borrow?

Cash advancePayday loan
Percentage of your credit limitUsually $100 to $2,000

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 $1,000 or $2,000, depending on the province you reside in. However, not all provinces and territories have regulations.

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.

  • Bottom line: How much you can borrow depends on your credit limit and any regulations in your province. Additionally, your credit score and income may affect the amount you can take out with a payday loan.

What are the repayment terms?

Cash advancePayday loan
Accrues interest immediately; can carry debt long-termAccrues 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.

  • Bottom line: Repayment for a payday loan is due much sooner than for a cash advance.

Compare options for short term loans

Check the websites of any lenders you’re interested in to confirm they operate in your province or territory of residence.

Name Product Max. Loan Amount Serviced Provinces/Territories Turnaround Time Loan Term Interest Rate
Cash Money Payday Loan
$1,500
Nova Scotia
New Brunswick
Ontario
Manitoba
Saskatchewan
Alberta
British Columbia
In as little as 15 minutes with INTERAC e-Transfer® if approved
12-14 days. Varies by Province
Varies by Province
Apply for your first $300 payday loan at a $20 borrowing cost (excludes Alberta, Manitoba, New Brunswick or Saskatchewan applicants). Residents of Manitoba and New Brunswick cannot apply for a loan online (must apply in-store).
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Can I repay the balance from my cash advance first, before paying for the purchases I made on my credit card?

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.

What are the interest rates?

Cash advancePayday 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.

  • Bottom line: You’ll pay a set amount in interest for a payday loan. For a cash advance, the interest you pay depends on how long you carry your debt.

Credit card cash advance tip

When choosing a credit card, if you plan on using the cash advance feature numerous times, it’s a good idea to look for a card that offers the same interest rate for purchases and cash advances. Sure, you’ll still have to pay a cash advance fee, but it’ll be easier to track your interest charges and you may save some money on interest in the process.

How much are the fees?

Cash advancePayday loan
Usually $10 to $20 or 3% to 5% of the transaction, whichever is greaterFinance 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.

What are the requirements?

Cash advancePayday loan
Credit card that allows cash advancesBank 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.

  • Bottom line: Payday loans usually have fewer eligibility requirements.

Learn about the provincial regulations in Canada

Cautions to keep in mind

Now that you understand the differences between cash advances and payday loans, it’s important to consider the drawbacks of both.

  • One drawback is they’re both very expensive loan options. In particular, payday loans are notorious for dragging borrowers into cycles of endless debt. Since payday loans cost so much, borrowers often have to take out additional loans to pay off what they owe.
  • Cash advances are pricy too. Not only do you have to pay an upfront fee to get one, but you also immediately start accruing interest on the amount you’re advanced. Additionally, the APR will likely be substantially higher than your credit card’s purchase APR.

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.

Bottom line

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:

  1. The amount you want to borrow.
  2. How soon you’re able to pay the money back.

You can also check out our guide on short term loans to learn more about payday loans and further compare your options.

Frequently asked questions

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