Online cash advance: what is it and what are the alternatives

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Whether your account is running low or your credit cards are maxed out, an online cash advance could be a convenient option to quickly secure funds.

Still, there are significant drawbacks to consider. These loans are expensive and come with short repayment periods that can lead to a vicious cycle of debt. They should only be used as a last resort.

What is a cash advance?

Also known as payday loans, online cash advances are short-term personal loans with exorbitant interest rates, usually due the next payday. They cater to borrowers with previous credit problems who can’t get approved elsewhere.

Several online lenders offer cash advances. To apply, you’ll visit the lender’s website, complete a short application, and wait for a loan decision. Be prepared to provide proof of income (ie, your most recent pay stub) and your next payment date so the lender can set a loan repayment due date. The lender will also request your routing and checking account number pertaining to the account to which the funds should be sent.

You may have to agree to a hard credit check, but that’s not common with online cash advance lenders. Even if they check your credit and your score is on the low end, you could still get approved for financing.

The lender will send the cash advance to your checking account if approved. When the due date arrives, they will automatically withdraw the loan amount (including interest and fees) to collect what is owed.

But if the funds are not available, you could be subject to overdraft or NSF fees from your financial institution. These costs could add up quickly if the lender repeatedly tries to collect payment. The lender will also assess fees and may allow you to renew the loan (for an additional cost) if this practice is permitted in your state of residence.

How is a cash advance different from other loans?

Cash advances are easier to get than personal loans, especially if you’ve had credit mistakes in the past. There are a few other key differences between the two to keep in mind.

cash advance loan personal loan
Rates 150% to 650% 5.40% – 36%
loan amount Up to $500 Up to $100,000
loan terms Two weeks 1 to 5 years
Funding time As soon as the same day As soon as the same day

Interest rates on cash advance loans are excessive due to the level of risk they pose to online lenders. However, consumers often turn to these debt products for fear of not having much luck elsewhere. The reality is that some online lenders also offer subprime loans that come with higher rates but are still more affordable than what you’ll get with an online cash advance.

In addition, you will typically receive a loan term of between one and five years. This greatly minimizes the likelihood of default, since you will have much more time to pay what you owe.

Some borrowers are attracted to cash advance loans instead of personal loans because of the quick funding times. However, many online lenders fund personal loans within a business day, and settling for a cash advance loan means you could get a much smaller loan than you need.

What are the alternatives to a cash advance?

Not quite sold on the idea of ​​a cash advance to secure quick financing? These alternatives are much more affordable and healthier for your finances:

Credit card

Consider using your credit card if you’re not maxed out to cover your financial emergency. The interest rate is much lower than what you’ll pay with an online cash advance. And if you can pay the balance in full before the due date, you can avoid paying interest on the fees.

Remember that this option is only viable if the credit card is used responsibly. Otherwise, you can find yourself stuck in the minimum payment cycle and spend a fortune in interest over time.

personal loan

If you have good or excellent credit and a consistent and verifiable source of income, you may qualify for a personal loan with a competitive interest rate. To illustrate, online lender Upstart offers personal loans up to $50,000 with interest rates as low as 5.40 percent.

Are you worried that your credit score will keep you from qualifying for a personal loan? As mentioned above, some online lenders cater to high-risk borrowers. So you may pay a higher interest rate, but still beat what you’ll get with an online cash advance.

For example, borrowers with credit scores as low as 580 may be eligible for a personal loan from Avant. Loans of up to $35,000 are available and the interest rate is capped at 35.99 percent.

Home Equity Loan

A home equity loan is another more affordable alternative to an online cash advance. It allows you to convert a portion of your home equity to cash and make payments over an extended period of time. Keep in mind that it could take several weeks to close on a home equity loan and you could lose your home if you miss payments.

Bottom line

Online cash advances can be tempting when it comes to a financial emergency. But before you settle for this expensive and potentially dangerous option, consider an alternative funding source to get the funds you need.

If you have to use an online cash advance, make sure you have a plan to pay the funds on or before the due date to protect your financial health.

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