A cash advance loan is a short-term, unsecured loan designed to provide quick access to funds for borrowers in need of emergency cash.

Fun fact, it’s easier to find a cash advance payday loan store than it is to get a Big Mac.

According to the St. Louis Fed back in 2017, there were 14,348 payday loan storefronts in the United States. This was roughly the same number of Starbucks locations and slightly more than the 14,027 McDonald’s. 

Like many, I’ve encountered situations where quick cash is helpful. I’ve been short on rent or needed extra cash to pay my electric bill before the next paycheck. However, after witnessing the consequences of a short-term cash advance loan on people close to me, I knew it was a slippery slope.

In this article, we’ll delve into various aspects of a cash advance loan, from hidden fees, online lenders to true costs and maximum amounts, providing you with the information needed to make an informed decision.

Types of Cash Advances

Payday loans – Payday loans are short-term cash advance that are usually paid back in a lump sum on the borrower’s next payday.

Credit card advances – Credit card advances allow cardholders to withdraw money from their credit card account, usually with higher cost of borrowing than regular purchases.

Merchant cash advances – Merchant cash advances provide businesses with a lump sum of cash in exchange for a percentage of their future credit card sales.

The below table explores some of the features and rates associated with these types:¹ ²



Interest Rates

Payday Loan

Short-term (usually 14-30 days) – No collateral required – Fast approval process

High – Fees and charges may apply

Title Loan

Secured by the borrower’s vehicle title – Higher loan amounts compared to payday loans – Fast approval process

High – Fees and charges may apply

Online Cash Advance

Online loan application – No collateral required – Fast approval process

High – Fees and charges may apply

Installment Loan

Longer repayment terms – Fixed monthly payments – No collateral required

Typically lower than compared to payday loans – Fees and charges may apply

There are real advantages

Quick access to funds -Processed quickly, with some lenders offering same or next day approval.

No credit check – Certain bad credit loans or no credit check loans are available to borrowers, as lenders typically do not require a credit check.

No Collateral Needed – Typically unsecured, meaning they do not require collateral. Lenders offer unsecured loans based on the borrower’s promise to repay. 

Real-Life Use Case Scenarios 

Unexpected medical emergency: John’s wife suddenly falls ill and requires immediate medical attention. Their insurance doesn’t cover all the costs, and John needs to come up with additional funds quickly. Cash advances could provide the necessary funds to cover these unexpected medical expenses.

Car repairs: Sarah’s car breaks down, and she needs to repair it quickly to get to work. She doesn’t have enough savings to cover the costs, so she borrows to finance the repairs and get her car back on the road.

Home repairs: After a storm, a tree falls onto Maria’s house, causing significant damage to her roof. She needs to get it fixed before more damage is done, but she doesn’t have the money to cover the repair costs. A cash advance could help Maria pay for the emergency repairs.

Utility bill: Tom has been struggling financially and has fallen behind on his utility bills. He receives a final notice stating that if he doesn’t pay the overdue balance, his electricity will be shut off. Tom can use some fast funding to cover the outstanding balance and avoid having his utilities disconnected.

Potential Disadvantages 

  • High interest rates –  Cash advance fees are typically higher than those of traditional loans.
  • Short repayment period – A cash advance loan is usually paid back in a lump sum on the borrower’s next payday, which means the money will need to be repaid in a short time period.
  • Risk of debt  – The short repayment time and high interest can lead some borrowers to take out additional loans to repay the borrowed amount, creating the risk of a debt cycle.

Situations Where Short-Term Loans May Not Be Ideal

  1. Long-term needs: For ongoing financial needs, consider installment or balance transfer credit cards.
  2. Repeat borrowing risk: If repayment might be challenging, avoid short-term loans to prevent a debt cycle.
  3. Alternative resources: Use an emergency fund or lower-interest credit if available.
  4. Non-essential purchases: Save up or explore lower-interest options for luxury items.
  5. Poor repayment history: Avoid taking out more loans, which could worsen your credit score and financial situation.

Eligibility Requirements

  • Borrowers must be at least 18 years old and be a U.S. citizen or permanent resident.
  • Borrowers must have a steady source of income, either through employment or another verifiable source.
  • Borrowers must have an active checking account in good standing.

Application Process

  • Loans can be applied for online or in person with a storefront lender.
  • Borrowers must provide proof of income, a valid government-issued I.D., and bank account information.
  • After submitting the required documentation, lenders will review the application and may approve the loan within a few minutes to a few hours.

Typical Repayment Terms

  • Usually repaid in a lump sum on the borrower’s next payday.
  • Repayment is typically done with a post-dated check or an automatic withdrawal from the borrower’s bank account.
  • If borrowers are unable to repay on time, they may face late payment penalties and additional fees.

Regulations and Restrictions State and Federal Laws

All cash advance loans are regulated by state and federal laws, with some states banning them altogether. 

**The Consumer Financial Protection Bureau (CFPB) is involved in regulating and protecting consumers from predatory lending practices.**

Some states impose restrictions on maximum loan amounts and fees

For example, 

  1. California:
    • Maximum amount: $300
    • Maximum finance charge: 15% of the total amount
    • Maximum APR: 460% (based on a 14-day loan term)
  2. Florida:
    • Maximum amount: $500
    • Maximum finance charge: 10% of the total amount + a $5 verification fee
    • Maximum APR: 304% (based on a 14-day loan term)
  3. Texas:
    • Maximum amount: Not specified, but most lenders offer up to $1,000
    • Maximum APR: 662% (based on a 14-day loan term)
  4. Illinois:
    • Maximum amount: $1,000 or 25% of the borrower’s gross monthly income, whichever is less
    • Maximum finance charge: $15.50 per $100 borrowed
    • Maximum APR: 404% (based on a 14-day loan term)
  5. Ohio:
    • Maximum amount: $1,000
    • Maximum finance charge: 28% of the loan amount
    • Maximum APR: 28% (based on a 14-day loan term)

The examples above contained up to date at time information at the time of publication. We understand that rules and regulations can change quickly, so it is important to check with the NCSL database regularly.

Cash advance & payday lenders alternatives

  1. Personal loan – Short term personal loans provide borrowers with longer-term financing at lower cost to borrow, which can be a more cost-effective solution for covering unexpected expenses available at a traditional bank, a credit union, or online lender .
  2. Savings account loans – Some banks and credit unions offer  loans, allowing borrowers to borrow against their savings account balance at a lower interest rate.
  3. Credit card balance transfers –  Transferring high-interest debt to a credit card with a lower interest rate or promotional balance transfer offer can help borrowers save on interest and pay off debt more quickly.
  4. Payment plans with creditors – Negotiating a payment plan with creditors can help borrowers manage their debt more effectively and avoid the high interest associated with payday loans.
  5. Emergency savings – Building and maintaining an emergency savings fund can help borrowers cover unexpected expenses without resorting to high-interest payday loans..

Borrowing from friends or family – Borrowing from friends or family can be a more affordable alternative to a cash advance loan, but it is important to have a clear repayment plan in place to avoid damaging relationships.

Cash Advance Loan FAQ

A cash advance provides borrowers with a short-term loan that is usually repaid in a lump sum on the borrower’s next payday.

The interest rate and annual percentage rate is typically higher than those of traditional loans. Fees may also be charged for processing the loan, and late payment penalties can apply if the borrower is unable to repay on time. Make sure you know the interest rate for your loan. 

The amount of money that can be borrowed is usually limited to a few hundred dollars, although some payday lenders may offer larger amounts.

Repayment is typically done with a post-dated check or an automatic withdrawal from the borrower’s bank account on the borrower’s next paycheck.

Generally speaking, once approved, payday loans are deposited into your bank account within 1-2 business days. This time frame may vary depending on the lender and your specific bank. Some lenders may offer same-day funding options for an additional fee.

A cash advance can be obtained as online loans or in-person. It is important to compare lenders and choose one that offers the most favorable terms and conditions, whether it’s a cash advance online or in person. 

Restrictions on who can apply vary depending on state and federal regulations. Generally, borrowers must be at least 18 years old, have a steady source of income, and have an active checking account.

Late repayment can lead to additional fees, known as late fees, being added to your loan balance. These details should be in your loan agreement. These fees vary by lender and state regulations, but they can be quite costly. Additionally, late payment may be reported to major credit bureaus and can negatively impact your credit score, making it more difficult to obtain credit in the future. 

Annual Percentage Rate (APR) represents the annual cost of borrowing money, including finance charges and any additional fees, expressed as a percentage. APR allows borrowers to compare different loan offers more easily. Any personal loans, credit cards, or other financial products will have an APR associated with them. 

What our borrowers are saying

Editor’s Note:

As a personal finance writer, I want to stress the importance of considering all your options before choosing a loan solution, whether it’s a cash advance loan, installment loan, or credit card. While any type of cash advance or any payday advances can provide quick access to funds in emergency situations, they often come with high fees. It’s crucial to review all of your options when you’re in need of a cash loan. 

CreditNinja, on the other hand, offers online loans that are designed to be a more affordable and manageable alternative. With flexible repayment terms, and a commitment to helping borrowers improve their financial well-being, CreditNinja is a trustworthy choice for those in need of financial assistance. By comparing your options and making an informed decision, you can work towards a brighter financial future.

For more information on cash advances and other loans, check out these resources:

Federal Trade Commission (FTC) – The FTC provides information on cash advance loans and alternative lending options. It also offers advice on avoiding scams and making informed financial decisions.

National Conference of State Legislatures (NCSL) – The NCSL provides information on payday lending statutes and regulations across the United States, which can be useful when discussing regional differences in cash advance loan restrictions.

  1. Payday Loans and Deposit Advance Products
  2. Center for Responsible Lending