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What is a cash loan?

Understanding the risks of taking out a cash loan

A cash loan is any loan that makes quick cash available for the borrower. 61% of Americans are living paycheck to paycheck, which may mean relying on a loan from time to time to make ends meet.

When looking for a fast financial solution, borrowers may think that quick cash loans are the most convenient option. However, they often come with hidden fees, a low loan amount, and brief repayment periods. You may find that taking out a personal loan is a much more sustainable financial solution than cash loans. 

Here, you will learn about the different types of cash loans available and how they may affect your finances. 

Types of Cash Advance Loans

Below are some of the most popular types of cash loans you may come across when you need to borrow money. 

  • Credit Card Cash Advances — Consumers can use their credit card to withdraw cash using their existing credit limit. Cash advances with a credit card work similarly to regular credit purchases in that the amount taken out will be added to the consumer’s monthly balance. But, interest rate charges on cash advances are often higher.
  • Payday Loans — Payday loans are meant for people looking for small loan amounts they can pay back to payday lenders within two weeks. Since payday loans come in such low loan amounts, they also have very short repayment terms. If you don’t want to deal with short repayment schedules and high-interest rates, you may want to stay away from a payday lender that offers this type of instant cash loan.  
  • Employer Cash Advances — If your employer is willing to extend an advance on your paycheck, you may be able to utilize an employer cash advance to take care of your expenses. However, keep in mind that employer cash advances are only meant for extreme financial emergencies where no other options are available. 
  • Mobile App Cash Advances — Consumers may also be able to access cash loans with payday advance mobile apps. Keep in mind that cash loan mobile apps often come with strict requirements like bank account minimums, credit score minimums, and more. 

Possible Risks That Can Come With Cash Advance Loans

These are the possible risks of cash advance loans:

Risk FactorDescription
Decline in Credit ScoreLate or missed cash advance payments can significantly lower your credit score, impacting financial credibility.
High-Interest RatesCash advance loans often have high-interest rates, increasing the total cost of borrowing.
Small Loan AmountsThese loans usually offer limited funding, which might not meet significant financial needs.
Additional FeesMay include prepayment penalties, balloon payments, and other hidden charges.
Risk of Unnecessary DebtEasy access to cash loans can lead to borrowing without adequate consideration, increasing debt.
Cycle of DebtShort repayment terms and high interest can trap borrowers in a cycle of debt, hard to break free from.

Alternatives To Cash Advance Loans

Below are a few types of personal loan alternatives you may consider before you jump into a cash loan. 

  • Personal Installment loans — Personal installment loans allow borrowers to repay their personal loan balance in equal monthly payments. While personal installment loans may come with some extra charges, like origination fees, they almost never come with major inconveniences like prepayment penalties or balloon charges. Furthermore, since installment loans don’t require borrowers to have collateral, they are considered unsecured loans
  • Debt Consolidation Loans — If you have more than one loan balance, overwhelming credit card debt, high-interest student loan debt, etc., you may consider consolidating debt with a single loan. Getting a debt consolidation loan can be a great way to reduce the number of monthly payments you are making and may even help you save money on interest rate charges as well. 
  • Auto Title Loans Title loans, also called auto title loans or car title loans, fall under the umbrella of secured loans. With title loans, borrowers use their vehicle title as collateral and allow their lender to sign on as a lienholder for the duration of their loan period. Similar to a payday loan, car title loans usually also always come with low loan amounts and extremely high-interest rates. 
  • Home Equity Loans or HELOCs — If you are the owner of a home or piece of land, you can use the equity in your property to secure a home equity loan or a home equity line of credit. Since the equity in homes/property is usually quite high, funding amounts for home equity loans and lines of credit are typically on the higher side as well. 

Advantages of Personal Loans Over Cash Advance Loans

Below are some of the pros of personal loans compared to cash loans.

More Time To Pay

Personal loans can come with varying repayment terms that can rely on loan factors like the funding amount, minimum monthly payment, and the borrower’s credit history. Borrowers can also work with their loan agents to come up with a payment schedule that both the borrower and lender feel comfortable with. 

A Diversity of Financial Products 

Cash loans come in just a few limited forms, but there are a wide variety of financial products that qualify as personal installment loans. Everything from installment loans to bad credit loans and even debt consolidation loans are under the umbrella of personal installment loans. With so many options to choose from, borrowers can find funding that works well with their personal budgets, which can mean something different for each consumer, depending on their current financial situation. 

Flexible Repayment Terms

As discussed, the flexible repayment terms can make personal installment loans much more manageable and convenient to pay off compared to most cash loans. Another perk of personal loan repayment terms is that they can also come with special refinancing perks. Many personal loan lenders will give borrowers a break on interest rate charges or even include additional funding if they decide to refinance their original loan. 

High or Low Loan Amounts

Personal loans may be better tailored to a wider variety of consumers’ budgets because they can come in either high or low loan amounts. Borrowers can access personal loans that come with funding amounts ranging from a few hundred dollars to a few thousand dollars. 

Thorough Application Process

While personal loans have many advantages borrowers can enjoy over cash loans, they may also come with a more thorough application process. Lenders for quick cash loans often just ask borrowers for their names and basic information before they send approved funds. 

Personal loan lenders tend to be a bit more thorough so they can make sure they are connecting borrowers with financial products that will work well with their lifestyle and budget. However, a more thorough application doesn’t mean it’s more difficult. Borrowers can often get through a personal loan application in just a few minutes, especially if their documents are prepared beforehand. 

FAQs About Cash Advances 

What is the main difference between a payday loan and a personal loan?

While both can provide quick funds, payday loans are typically smaller, short-term loans with high interest, meant to be repaid by your next payday. Personal loans, on the other hand, often have longer repayment periods and lower interest rates, suitable for larger financial needs.

How does a credit card cash advance work compared to a regular cash advance loan?

A credit card cash advance allows you to withdraw cash using your credit card, directly from an ATM or bank. A credit card cash advance typically has higher interest rates and fees than regular purchases on your card.

Can I get a cash loan if I don’t have a bank account?

Most cash loan providers require a bank account for depositing the loan amount and withdrawing repayments. However, some lenders might offer alternatives, but these can come with additional challenges or higher costs.

Are there any alternatives to payday loans and cash advances for emergency funds?

Yes, alternatives include personal installment loans, borrowing from friends or family, using a credit card for direct purchases, or exploring community assistance programs. These options can offer more favorable terms and less risk than payday loans or cash advances.

What should I consider before taking a payday loan or cash advance?

Consider the interest rates, fees, repayment terms, and the impact on your budget. Also, assess whether the loan will address your financial needs without leading to a debt cycle. Exploring other options like personal loans or credit card advances might be beneficial.

How quickly can I access funds from payday loans or credit card cash advances?

Payday loans often provide funds quickly, sometimes within 24 hours. Credit card cash advances are immediate, as you can withdraw cash instantly from an ATM or bank.

What happens if I can’t repay cash advance loans on time?

Failing to repay on time can lead to additional fees, increased interest rates, and a negative impact on your credit score. It’s important to contact your lender to discuss any difficulties as soon as possible to explore potential solutions.

Bottom Line With CreditNinja: Risks of Cash Advance Loans

While cash loans can be a quick way to get fast funding, CreditNinja wants you to know that they come with plenty of risks that may leave borrowers in a worse financial position. After doing your own research on lenders and financial products, you may find that personal loan risks are much more manageable compared to their cash loan counterparts. 

References

  1. More than 60% of Americans are living paycheck to paycheck | CBS News
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