When you need money fast, cash advance loans can be the answer to a prayer.
But before you sign over a paycheck or put your credit card in an ATM, you should know what you’re getting into and the real costs. A cash advance loan gets you money quickly, but you usually have to pay it back just as quickly.
These types of loans can be appealing since you can get the money with a credit check or having to put up collateral. But lenders usually balance their risk by charging much higher interest rates.
Not every advance cash loan has such negatives, though. That’s why it’s important to understand the different types before you commit to taking emergency cash from a lender. Let’s look at three common types and what you need to know about them.
A payday loan allows you to take out a cash loan in advance of your next paycheck. You’re borrowing against your future income, and the lender expects you to pay the loan back on your next payday. These kinds of loans can be secured online or at a payday lender storefront.
These loans are popular for emergencies because you usually get the money the same day. They have a quick approval turnaround because they don’t take your credit score or other financials into account.
How much you can borrow is based on state regulations and the size of your paycheck. Most payday loans are under $500.
Their biggest pro is how convenient they are to get, which makes them especially useful for emergencies. You can get money in hand without having to do a lot of paperwork or waiting a long time to get it. It can be a good option if you can pay it off your next payday, or you only need a small amount for a short time.
When your next payday rolls around, you can extend the loan if you need to. More than 80 percent of borrowers extended a payday loan within 30 days.
You’ll be charged more interest if you extend, however, and the hefty interest rates are one of the biggest downsides to these types of loans. They’re usually more than 100 percent due to the higher risk. They also don’t help you build a credit rating since the loans usually aren’t reported to credit bureaus.
Getting a cash advance from your credit card is one of the more popular fast cash options. More than 175 million people have at least one credit card, making it super accessible to most people.
This type of advance tends to be taken out at an ATM, although you might get a check to deposit at your bank. You will pay a higher interest rate on an advance than on a purchase along with a fee that could be a flat amount or a percent of the loan. Still, the interest rate will be far lower than anything you’d get from a payday loan.
Usually, your advance limit is a much smaller amount than your credit limit. But the cash is quick and easy to get since there’s no credit check required. That makes it a good source for emergencies as long as you already have a card and haven’t maxed out the limit.
When you get your next credit card statement, the advance balance might be listed separately from your purchase balance. Any payment you make can be applied to both.
However, you should know that if you only make a minimum payment, the card issuer can apply it to only your purchase balance since it’s at a lower interest rate. That means you continue to carry the advance balance forward at the higher interest rate.
There’s no grace period with a cash advance, so you’ll start paying interest immediately upon receiving the money. And while the advance doesn’t directly impact your credit score, it does increase your overall debt level and credit utilization, which factor into your credit score.
If the interest rates for the other loans scare you or you need more money than they offer, you might consider taking out a small personal or installment loan. These are repaid with monthly payments over a term of up to seven years.
Like a mortgage, each payment pays down some of the principal along with the interest. Unlike a mortgage or car loan, the personal loan is unsecured and not limited to a specific use. You can apply the money to debt consolidation, medical expenses, or emergencies.
These loans offer better terms than payday loans because you don’t have to pay the money back in a lump sum. You’ll also get lower interest rates than credit cards offer.
The average amount for a personal loan is around $7,000, which is far more than you could get from the other loan options. While that might seem like a lot to you, most banks don’t bother with loans that small since they cost just as much to take care of as a bigger loan.
Online options tend to be easier to access since those lenders can better afford to offer smaller loans. They’re good options if you want to save on interest or don’t have a credit card. You can get larger amounts, and the money usually goes directly into your bank account.
Some lenders might require you to borrow more than you need, and the monthly payments can be higher than a credit card since you can’t pay a minimum amount. The smaller your loan, the higher the interest rate might be as well. It might also not be your best option in an emergency since it can take more time to get the money than your other choices.
When emergencies strike and you need cash fast, it’s important to understand your options so you can choose the best one for your particular situation. Getting a cash loan from a payday lender or a cash advance from your credit card can be quick but also expensive. Small personal loans usually offer better interest rates and terms.
Want to do more research on cash advance loans? Check out other articles on our site then contact us to find out what kinds of rates and terms we offer on cash loans.