Cash Advance: An Overview
If you were ever wondering how you can get some extra money for your big bill, you have probably heard of cash advances. But what is a cash advance? This type of loan is a great way to get the needed money without a lot of trouble.
Here, in this article, we will provide you with more information on how a cash advance works, what they are, and some things to consider before taking one out.
When talking about cash advance, the meaning behind it is very simple. The definition of this type of loan is to get the money quickly and easily whenever you need it. If you are looking to take out a cash advance, there are many ways you can do it, like from a bank, credit union, online, or even from a payday loan provider.
In order to be able to qualify for a cash advance, you need to have a good credit score and provide verification of your income. Also, you will need to have enough money in your account to be able to pay it back.
Once you have qualified for it, your bank or lending institution will deposit funds into your account, and you should receive the money in a couple of days.
How Does a Cash Advance Work?
Now that we have covered some basics of a cash advance let’s take a look at how it works. The first thing to know is that this is a short-term loan that you can use to cover your upcoming expenses. Like with any other loan, you borrow money from the lender, but with this type of loan, you don’t need to put collateral. After that, as we mentioned before, you need to get qualified and present your application form, your ID, and verification of your income.
Once the lender verifies that you are eligible, you should receive the money in a few days in your account. But remember, cash advance loans have high-interest rates since they are short-term, so don’t be surprised about the big fees associated with them.
Cash Advance Types
Many other types of loans have a lot of options to them, and cash advance falls in that category as well, with different types available to the borrower to choose from. Here we will give you the most common ones:
- Credit card cash advance
- Payday cash loans
- Merchant cash advance
We will explain them a little bit more.
Credit Card Cash Advances
A lot of people like to use their credit cards for regular purchases and emergencies. That’s why credit cash advance can be of great help if you are looking to get the money fast. This means that you can borrow money from your credit card company up to a certain limit. Once you do that, you will have around 30 to 60 days time period to repay the money back.
But remember, if you default on the payment, the credit card company can charge you interest and fees. So, before taking out a credit cash advance, be sure you can repay it back.
Another great way of getting the needed funding fast is a payday loan. Payday loans are also short-term but know that they can be expensive if you have to pay them back quickly.
This type of loan can be a life saver if you need the money for groceries or if you have unexpected expenses like a big bill. With that said, you will have 30 days to repay the loan back, including both the interest rate and fees. So make sure you are able to do that since the store can take action against you, including filing for foreclosure on your home or seizing your wages.
Merchant Cash Advance
If you are in search of money fast for your business, then a merchant cash advance is the best option for you. The great thing about this loan is that you can get it from a bank or credit union, which will then allow you to borrow money from your business partner (usually a merchant) in order to cover current expenses. After you get approved for it and repay it back, both parties will benefit from it. Simply said, the business is able to cover its costs while the lender has received interest in their investment.
Generally speaking, merchant cash advances are available in amounts between $1,000 and $25,000, with terms ranging from three months to twelve months.
With that said, if you are interested in getting a merchant cash advance to help out your business, contact your financial advisor to help you find the best one for your needs.
What Are the Cash Advance Terms and Fees?
Before you even take out a cash advance loan, familiarize yourself with their interest rates and fees. The interest rate varies from lender to lender, but it’s much higher in comparison to traditional loans.
Also, they have very big fees associated with them; for example, if you take out 10$, your fee will be 2%. That’s why it is crucial to shop around for different lenders to find the best offer, and if you can, go for the traditional loan.
Cash Advances: Benefits and Drawbacks
This type of loan can come in handy when it comes to getting money fast and easily. Even with that, you should be aware that there are some pros and cons to it before taking a cash advance loan out.
Here are some benefits:
- Fast and easy to get
Even though they have benefits, don’t forget about the downsides as well. Here are some of them:
- High-interest rates
- Big fees
We will explain them more below.
The biggest advantage to cash advance loans is that you don’t have to go directly to the bank to get them since you can fill out your application online from the comfort of your home. Also, they are flexible in the sense that you can get the money whenever you need it.
Now that we explained the benefits let’s take a look at the setbacks. One of the biggest drawbacks of cash advance loans is that you will have a higher interest rate than with a traditional loan. On top of that, you will pay origination fees, and some lenders also charge APR (Annual Percentage Rate).
Can Cash Advances Hurt Your Credit?
Although cash advance can be a great way to get money fast, it can have a negative impact on your credit score. This is because every time you withdraw the money from your credit card as a form of a cash advance, it appears on your credit report and it stays there for seven years.
That can have a huge impact on your credit in the future, especially if you are applying for a mortgage because the lender will see this and will perceive you as a red flag. In other words, a cash advance can ruin your credit score, and you might not be able to get a mortgage in the future.
So, before you take out this type of loan, consider do you really need it since your credit can take a big hit.
Alternatives to Cash Advance
Now that we have given you a rundown of how the cash advance works let’s take a look at some alternatives that can be more beneficial for you.
Here are some alternatives:
- Line of credit – Great way to get a small amount of money when needed, and you only pay interest on the balance due.
- Personal loans – If you have good credit, this is the best way to go since you will have a lower interest rate.
- Microloans – Another great option, and you can get them pretty much anywhere.
- Friends and family – If you need a small amount of money, you can always turn to family and friends for help.
In this article, we gave a depth explanation of cash advances, how they work and what are their pros and cons. Even though it might be tempting to use it since you can get the needed money fast and easy, you should be aware that your credit can take a huge hit in the future.
That’s why our advice is to shop and compare different lenders if you really need the money fast and your only option is cash advance. On the other hand, if you are okay with waiting a bit more to get the money, traditional loans are always a better option.
So, before you take out any loan, make sure to do your diligence and research.