Payday Loan vs. Cash Advance: What’s The Difference?

What is a payday loan?

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A payday loan is a short-term loan that typically comes with a few application requirements.

Sound great? Stick with us, we’re about to ruin them for you 💖

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What do you need for a payday loan?

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The requirements to qualify for a payday loan usually include:

💰 An active bank, credit union or prepaid card account

💰 Proof or verification of income from a job or other source

💰 Valid identification, and for the borrower to be at least 18 years old

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How do payday loans work?

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The biggest difference between payday loans and other types of loans is pricing. This is the thing that really makes them suck.

Payday loans are notorious for their ridiculously high interest rates. We literally have a whole article on why we hate this.

This has gotten particularly bad ever since the Consumer Financial Protection Bureau loosened restrictions on payday loans back in 2020, making it easier for payday lenders to give short-term, high-interest loans to customers who probably aren’t able to pay them back.

According to the Center for Responsible Lending, a typical payday loan in Texas comes with 661% interest. Four states have no interest-rate caps at all, and one state allows a 1,950% APR for a $100, 14-day loan. Ahem, Missouri.

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How the “payday loan trap” works

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Nearly 12 million Americans take out a payday loan each year, and they’re mostly from undeserved families, according to data from the Federal Deposit Insurance Company.

What’s more, the typical borrower earns just $30,000 annually, and about 58% of borrowers have difficulty meeting basic monthly expenses like rent and bills.

It’s almost as though it benefits payday loan companies to target undeserved families with ridiculously high interest rates to keep them trapped paying off spiraling debt.

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How to avoid a payday loan trap

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The Consumer Financial Protection Bureau recommends several steps you should take before you take out a payday loan:

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☁️ Reach out to nonprofit organizations, community support groups, employers or friends and family for assistance

☁️ Lower your payments due by negotiating with your creditor or debt collector

☁️ If you’re not in dire financial straits currently, start now on an emergency fund to beef up your contingency plan

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And if you are stuck in a payday loan nightmare, we have a whole blog post on getting out of it.

So. It’s best to avoid payday loans altogether.

Of course, if you’re already in a jam, sometimes you need a quick spot.

Luckily, there are alternative ways to borrow money that are less predatory.

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What is a cash advance?

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In contrast a cash advance is calculated against your credit card limit or income.

Of course, cash advances aren’t all perfect. It’s important to shop around for the best one for you.

Luckily we have a whole blog with a list of the top cash advance apps of 2022. We’ve compared everything in there — from advances with 0% interest, to no late fees, to the highest advance limits. Ya welcome.

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How to get a Cleo cash advance

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Ok, yes, we did include Cleo on the cash advance list, but we put her last because we’re humble.

If you’re in need of a quick spot, Cleo can offer up to $250** with no credit checks and no interest. Cleo is freelancer friendly, too. There isn’t a specific income requirement, and we don’t have to verify your employment status.

You just connect your bank account and our algorithm calculates your eligibility.

And ‘cause we’re not like other money apps, with Cleo Plus you get access to a load of other cool features that are designed to help you eventually stop needing a cash advance 💅

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Stuff like:

💙 Cash back on your favorite stores

💙 Roundup and autosave, to help you build savings while you spend

💙 A budgeting tool that’s ridiculously easy to use and personalize to your spending

💙 A place to monitor your credit score (so you can see if that missed Klarna payment came back to haunt you 👻)

💙 Roast mode, to hold you accountable for your unhinged late night Amazon binges

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Wanna know more? Check out our blog on how to get a Cleo cash advance.

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Enjoy this post? Give it a share or send it along to a friend. You never know, it could make a big difference.

Big love. Cleo 💙

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*Cleo Plus is our subscription service, which offers eligible users cashback on your money, information on your credit score, and access to cash advances (“Cash Advance”). Advance amounts will vary based on eligibility. If you don’t want to subscribe, you can also apply for cash advance by contacting our customer service at team@meetcleo.com. To learn more about eligibility, repayment, and overall terms, please visit: meetcleo.com/terms.