Types of Payday Loan Cash Advances

There is more than one way to define a cash advance, so let's start with the oldest first. The original cash advance definition involves an employer making an advance payment to an employee, ahead of the next scheduled paycheck. Since pay periods were generally once a week in the past, that meant an employee could approach his or her employer on Tuesday, if Friday is the regularly-scheduled payday, and ask for an advance. It was quite common to provide advances for employees this way in the past.

But that was before computers, and long before payroll functions were outsourced to separate companies that calculate withholding and prepare checks for busy employers. At the present time there are very few employers who make cash advances to their employees, and even those who may be inclined to do so find that they have to make a personal loan because company or corporate systems don't allow for exceptions. Things have become much more regulated and complex than a few decades ago, including the way employees are paid.

Any cash advance definition starts with the fact that money is paid ahead of time somehow. As an example, a credit card cash advance is money that is provided to the credit card holder to use as cash or for any purpose. It is not a direct charge on the account holder's card. It is more like a check written from a regular checking account and made out to "cash." But money coming out of a checking account already belongs to the account holder. That person is getting cash from his own money by filling out a check that way. Credit card cash advances are money that the credit card account holder does not have in an account. It is, therefore, money given as a cash advance against the account holder's credit, meaning against the line of credit or credit limit established by the credit card issuing company.

A credit card-based cash advance definition, then, is basically a method that allows a card holder to convert a portion of his or her available credit limit into cash. This method of getting cash works by swiping the credit card in an ATM, utilizing printed cash advance checks that arrive along with monthly billing, or presenting the card in person at a bank. A cash advance is basically a loan, no matter which way the money is obtained by the account holder. In most cases, a credit card cash advance will carry a higher, in some cases much higher interest rate than regular charges made on the card for goods and services purchased or general bill payment.

Now, the payday loan cash advance definition is completely different, yet again. It is not a loan made by an employer to an employee, and it is not a loan against a credit card balance. It is a commercial agreement between a lender and a borrower that involves a cash loan in exchange for a pre-authorized debit against the borrower's bank account. Presumably, a paycheck will be deposited into his or her bank account on a specific date in the near future, and on that same day the lender has a right to collect the entire loan amount, plus interest and fees.

This third type of cash advance is made in anticipation of the borrower's income, and it is not based on an extension of credit the way credit cards work. The lender is secured by an automatic debit authorized by the borrower in the loan documents, and assuring both parties of the terms and conditions of the short term, single pay loan. These loans are not repaid in installments the way credit card advances are repaid. They are repaid in a single payment on the borrower's next payday.

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