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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 loanPersonal loan
|Rates||150% to 650%||Up to 35.99%|
|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.
7 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:
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.
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 6.70 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.
If you have a 401(k), you can borrow against it if allowed by your employer and the plan administrator. It works like a traditional loan, and you’ll make principal and interest payments over a set period – up to five years. The upside is there are no stringent eligibility guidelines or credit checks, and the funds you repay are deposited back into your 401(k). But if you leave your employer before the loan term ends, it could be converted into an early distribution subject to taxes and penalties.
A collateral loan is a type of personal loan secured by an asset. They also work like traditional personal loans, but often come with lower interest rates since the lender assumes less risk. Still, it’s vital to only borrow what you can comfortably afford to repay. If you fall behind on the loan payments, the lender can seize your collateral to recoup what’s owed.
You can also ask your employer for a salary advance if you need fast cash but can’t get approved for a personal loan. Some employers offer this perk to employees, and you could receive all or a portion of your future earnings before payday. Be mindful that eligibility requirements apply. Furthermore, your employer may charge a nominal fee to process your request.
Peer-to-peer loans are another alternative form of funding available through investors to borrowers with lower credit scores. To access this type of loan, you can use an online lending platform, like Prosper, that matches you with potential lenders based on your financial profile. Plus, you may find that the interest rates are lower than you’d receive on a personal loan with a traditional lender.
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.