The Beauty of Short – Term Loans

You can get a cash advance from a credit card company or a payday lender; however, they are not the same types of loans. When a credit card company offers you a cash advance, it’s typically money that is on a revolving credit line with very high interest rates. By rolling over the balance the banks that offer these loans can end up making large amounts of money on a very small balance, especially if you never pay it off or pay only the minimum payment. A payday loan is also called a cash advance, but the main difference is that is a short-term loan.

The Mechanics of Short-Term Loans

When you take out a cash advance with a payday lender, the contract you establish is that you will pay back the loan within the next paycheck cycle. That means these loans may only be for one week to a month, depending on the next time you get paid. At that point, it’s set to be paid back in full. Since the loan is short-term, usually the amount is limited to between $300 and $600, unlike a credit card. You can take out tons of cash advances on a credit card and end up in massive trouble for years. Once you pay off a small short-term loan, however, you no longer have to continue to pay interest on it or accrue additional charges on the loan. For people who just need a little extra to cover a shortfall in cash, like at the end of the month, a payday loan works as a stop gap loan that isn’t revolving debt.

Keep Your Debt Low

Credit card cash advances are dangerous for people who don’t have the discipline to repay the debt off each month. They can quickly increase due to interest charges and fees and the minimum payment on the revolving credit line can mislead the consumer who doesn’t realize it will take years to pay off the debt at that rate. Short-term loans are better because it forces the consumer to repay the debt as soon as possible, avoiding mountains of debt over many years.