What are the differences between payday loans and cash advances? Should you use a payday loan or cash advance product? How do you stop using payday lending once you have started? These are just some of the questions we’ll explore in this blog post comparing pay day loans and cash advances.
Firstly, let’s look at what each product is.
A payday loan is typically a short-term loan designed to provide quick access to small amounts of cash, typically to cover urgent expenses until the borrower’s next pay cycle.
Cash advances are designed to bridge a short-term cash shortfall. They can be flexible and repaid in the borrower’s next income payment, or over a period of time with repayments commonly deducted automatically over a few scheduled instalments.
What are the differences between pay day loans and cash advances?
Typically pay day loans are shorter term and more expensive than a cash advance. A cash advance is typically repaid over a 2 to 6 week period and although expensive compared to traditional credit, generally a cheaper alternative to a pay day loan.
Should you use a payday loan or a cash advance?
If you are in need of cash urgently and can afford to repay the whole sum in your next wage, then a pay day loan is often the quickest solution, but also the most expensive. If you would prefer not to repay the whole amount from your next wage, a cash advance can provide more flexibility on repayment term with a lower annualised cost of money.
How do you stop using payday lending once you have started?
Once you have started using a pay day loan product, you’re often stuck needing another loan as soon as you repay the first one. A good way to exit this cycle is to take out a cash advance with a longer repayment period. This allows you to reduce your spending to a small amount to cater for the repayments to the cash advance provider.
The Payday loan debt cycle
In this example, a $550 payday loan is taken out for a one-off expense and repaid in the next wages payment. However, after repayment of the loan cash available drops from wages of $900 a week to only $300. This creates the need for another payday loan… and another… and another. All that’s really happened is you’ve had a $50 reduction to your weekly wage and you’re stuck in a payday debt cycle.
| Wages | Payday loan | Payday loan repayment | Wages remaining | NEW Payday loan | Cash available | |
| Week 0 | $550 + $50 fee | |||||
| Week 1 | $900 | $600 | $300 | $550 | $850 | |
| Week 2 | $900 | $600 | $300 | $550 | $850 | |
| Week 3 | $900 | $600 | $300 | $550 | $850 | |
| Week 4 | $900 | $600 | $300 | $550 | $850 | |
| Week 5 | $900 | $600 | $300 | $550 | $850 | |
| Week 6 | $900 | $600 | $300 | $550 | $850 | |
| Week 7 | $900 | $600 | $300 | $550 | $850 | |
| Week 8 | $900 | $600 | $300 | $550 | $850 |
How to exit the Payday loan debt cycle
A cash advance can be used to exit a payday loan debt cycle. This involves a small reduction to cash available across a shorter period of time to exit the debt cycle.
To follow the previous example, if a cash advance was used to remove the need for a payday loan, there would only be a small reduction to cash available (from $850 to $769) for a 4 week period, and then cash available each week would dramatically increase.
| Wage | Payday loan | Payday loan repayment | Wages remaining | NEW Payday loan | Cash Advance | Cash advance repayments | Cash available | |
| Week 0 | $550 + $50 fee | |||||||
| Week 1 | $900 | $600 | $300 | $550 | $850 | |||
| Week 2 | $900 | $600 | $300 | $550 | $850 | |||
| Week 3 | $900 | $600 | $300 | $500 + $25 fee | $800 | |||
| Week 4 | $900 | $900 | $131.25 | $768.75 | ||||
| Week 5 | $900 | $900 | $131.25 | $768.75 | ||||
| Week 6 | $900 | $900 | $131.25 | $768.75 | ||||
| Week 7 | $900 | $900 | $131.25 | $768.75 | ||||
| Week 8 | $900 | $900 | $900 |
The positive money habits learned in this 4-week period of the cash advance loan, may also enable the user to commence establishing an emergency fund for future short term cash requirements.
How does One Click Life’s Cash Advance compare to a payday loan?
Both a payday loan and One Click Life’s cash advance provide instant access to funds when you need them for life’s unexpected challenges. The One Click Life Little Money cash advance is designed to be used as needed and not something that traps you in a debt cycle. A lot of customers use it to exit a payday loan debt cycle.
Here’s how our cash advance compares to a payday loan:
| Payday loan | Cash Advance (One Click Life) | |
| Cost | Establishment Fee + Interest | Establishment Fee $25 |
| Term | Single pay cycle | 4 week term |
| Other Fees | Look out for hidden Fees | No additional Fees |
| Interest Rate | Usually 4% per month | None |
| Size $ | $100 to $1,000 typically | $500 |
Responsible Lending
Both a payday loan and a cash advance are designed to lend funds, or advance cash in a responsible manner. If you are using one of these products and are experiencing financial hardship, reach out to the product provider and they will likely be able to assist guiding you through clearing your debts.
The simplest way to manage your financial life
One Click Life offers a range of financial products from cash advances, fast online Tax Returns at your fingertips, and access to your tax refund the next day. All in an easy-to-use platform run by industry professionals.
Managing your financial life can be time-consuming and tedious. Our app allows you to do this fuss-free, giving you a simple way to organise, track and manage all of your Life Admin in one place.
Let One Click Life take care of your short term cash needs, your tax return and life’s essential tasks, so you can spend more time doing the things you love.
