A complete guide to cash advances, personal loans, and payday loans

When you need quick access to cash for an unexpected expense, a variety of small-dollar loan options are available. However, many of these products have separate names but similar features, making it difficult for the average person to differentiate between them. This guide will help you understand and compare personal loans, payday loans, and cash advances, along with sharing why Varo Advance¹ might be just the solution you’re looking for (quals apply).

Understanding the different types of small loans

What is a payday loan?

A payday loan is a high-cost, short-term loan that is typically repaid on your next payday. These loans are usually for small amounts, often under $500, and are funded by non-bank lenders².

• How they work: To get a payday loan, you generally provide the lender with access to your bank account or write a post-dated check for the loan amount plus fees. The lender then automatically withdraws the funds on your next payday. Payday loans typically do not require a credit check, but their high fees often translate to an annual percentage rate (APR) of 400% or more².

• The risk: The extremely high cost and short repayment terms can lead to a cycle of debt. If you cannot repay the full amount on time, you may have to "roll over" the loan, incurring more fees and making the debt snowball.

What is a cash advance?

The term "cash advance" can refer to a few different products, so it's important to understand how cash advance apps work alongside traditional cash advance options.

• Modern cash advance apps: A new type of cash advance is offered by some banks and fintech companies. These services provide small amounts of cash, often with a different fee structure than traditional interest. Some may charge a flat fee, others require a monthly subscription, and some even ask for a voluntary tip in place of a fee. One example of a modern cash advance for a flat fee is Varo Advance¹.

• Credit card cash advance: This is a short-term loan you can get by withdrawing cash from your credit card. These are often expensive, as they come with a high APR (often up to 30% variable³) and fees that start accruing the moment you take out the money.

• Payday cash advance: This is essentially a payday loan that uses "cash advance" as a marketing term to sound less risky. They have the same high costs and short repayment periods as traditional payday loans.

Read more: What is a cash advance?

What is a personal loan?

The term personal loan (or small dollar loan) often refers to more responsible, regulated loans with a lower cost than payday loans and longer repayment terms. Personal loans are typically offered by banks or online lenders for amounts up to a few thousand dollars. While they often have longer repayment terms and lower APRs than payday loans, but may require a credit check to qualify for.

• How they work: Unlike payday loans, personal loans are typically funded by banks, credit unions, or online lenders and are not repaid with your next paycheck. Instead, they come with a fixed interest rate and a set repayment term, allowing you to pay back the loan in predictable monthly installments.

• The risk: The primary risk with personal loans is defaulting on your payments. Because these loans are typically reported to credit bureaus, missing payments does have the ability to damage your credit score.

Comparison at a glance

This table provides a side-by-side breakdown of the most common small loan options.

Which option is right for you?

The best option depends on your financial situation and needs.

• For short-term needs: If you need a small amount of cash quickly, a modern cash advance like Varo Advance can provide a single, transparent fee advance as a low-cost, low-risk alternative to a traditional payday loan. It can help you bridge a short-term gap without trapping you in a cycle of high-interest debt, and customers can get an advance between $20-$250 on the first day of becoming a customer by linking a qualifying account.¹

• For larger or long-term needs: A personal loan is a more suitable option for a larger purchase or to consolidate debt, as it has a lower interest rate and a longer, more manageable repayment schedule. Or, for those who don’t want a fixed interest rate personal loan, Varo Line of Credit⁴ could be a good alternative.

• To avoid high costs: Avoid payday loans and traditional cash advances from credit cards or predatory lenders. These products can put you at risk of falling into a difficult cycle of debt.

A simple, transparent solution

When faced with an unexpected expense, a modern cash advance can be a more affordable and straightforward alternative to traditional payday loans, especially for those with poor credit. While traditional options may hide fees in fine print, a transparent flat-fee advance can help you bridge a short-term gap without the added stress of high interest rates.

If you're a Varo customer in need of a quick, low-cost solution, Varo Advance offers between $20-$250 on the first day someone becomes a customer and links a qualifying external account¹. It's a simple, upfront way to get the cash you need without the hidden costs—just a single, clear fee and no interest.

Get started today by opening a Varo Bank Account or click to learn more about Varo Advance!

1 Varo Advance (VA) is a small dollar line of credit. Initial limits range from $20-$250. Fees range from $1.60 - $40 based on loan amount, and deposits to your Varo Bank Account. No interest is charged. For full details see Terms and Conditions. Your current limit and applicable fees can be viewed in the Varo App. Only one outstanding advance at a time, must be repaid in full prior to requesting a new advance. Limits and eligibility evaluated daily and may change at any time. You must have an active Varo Bank Account with a positive balance, no delinquent VLOC or charged off Believe account in prior 6 months and one of the following: 1) receive Qualifying Direct Deposits (QDD) of $800+ to your Varo Bank Account current or previous calendar month (max line size $500). 2) A linked account with QDD of $800+ in the current or prior calendar month, average daily balance of $100 in the previous 30 days and active for at least 60 days (max line size $250) or 3) receive deposits of $800+ to your Varo Account in the previous 3 months (max line size $100). Add’l qualifications may apply.

Qualifying direct deposits are electronic deposits of your paycheck, pension or government benefits (such as Social Security or unemployment) from your employer or government agency to the extent that can be identified. Tax refunds and government stimulus payments, Person-to-Person payments (such as Venmo or Varo to Anyone), and funds deposited using a Varo routing number are not considered a direct deposit.

2 Based on information found on Consumer Finance

3 Based on information found on Bankrate

4 The Varo Line of Credit (VLOC) is a short term loan with credit limits ranging from $600 - $2000. A flat fee of $60 to $400 is assessed with each advance based on the amount. Once qualified your credit limit may fluctuate based on a variety of factors. You may only take one VLOC advance out at a time. Eligibility and/or credit limit information is available in the Varo App. Quals apply.