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Online cash advance: What is it and what are its 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 costly and come with brief 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, generally due on your next payday. They cater to borrowers with past credit challenges who can’t get approved elsewhere.

Several online lenders offer cash advances. To apply, you’ll visit the lender’s website, complete a brief application and await a lending decision. Be prepared to provide proof of income (i.e., your most recent pay stub) and your next pay date so the lender can set a due date for the loan to be repaid. The lender will also request your routing and checking account number belonging to the account where the funds should be sent.

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

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

But if the funds aren’t available, you could be subject to overdraft or NSF fees from your financial institution. These costs could add up quickly if the lender repeatedly attempts to collect the payment. The lender will also assess fees and may allow you to roll the loan over (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 obtain than personal loans, particularly if you’ve had credit missteps in the past. There are some other key differences between the two to be aware of.

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
Time to funding As soon as the same day As soon as the same day

The interest rates on cash advance loans are excessive due to the level of risk they pose to online lenders. Yet, consumers often turn to these debt products out of fear that they won’t have much luck elsewhere. The reality is some online lenders also feature subprime loans that come with higher rates but are still more affordable than what you’ll get with an online cash advance.

Furthermore, you’ll typically receive a loan term between one and five years. This greatly minimizes the likelihood of default as you’ll have much more time to repay what’s owed.

Some borrowers are attracted to cash advance loans over personal loans due to rapid funding times. However, many online lenders fund personal loans within one business day, and settling for a cash advance loan means you could get a much smaller loan than you need.

What are alternatives to a cash advance?

Not entirely sold on the idea of a cash advance to secure fast funding? These alternatives are far more affordable and healthier for your finances:

Credit card

Consider using your credit card if it’s not maxed out to cover your financial emergency. The interest rate is far 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 charges.

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

Personal loan

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

Worried your credit score will keep you on the sideline and unable to qualify for a personal loan? As mentioned above, some online lenders cater to subprime borrowers. So, you may  pay a higher interest rate, but it still beats what you’ll get with an online cash advance.

For example, borrowers with credit scores as low as 580 could 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 the equity in your home to cash and make payments over an extended period. Keep in mind that it could take several weeks to close on a home equity loan, and you could lose your home if you default on the payments.

Bottom line

Online cash advances can be tempting when dealing with a financial emergency. But before settling for this costly and potentially dangerous option, consider an alternative funding source to get the funds you need.

If you have to resort to an online cash advance, ensure you have a plan to repay the funds on or before the due date to protect your financial health.

Written by
Allison Martin
Allison Martin's work began over 10 years ago as a digital content strategist, and she’s since been published in several leading financial outlets, including The Wall Street Journal, MSN Money, MoneyTalksNews, Investopedia, Experian and Credit.com.
Edited by
Loans Editor, Former Insurance Editor