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.
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
Short-term (usually 14-30 days) – No collateral required – Fast approval process
High – Fees and charges may apply
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
Longer repayment terms – Fixed monthly payments – No collateral required
Typically lower than compared to payday loans – Fees and charges may apply
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.
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.
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.**
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.
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.
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.
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.
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