A cash advance or payday loan is a short term loan that generally promises a quick application process in exchange for quick money in case of approval. We make it happen that typical work here. You will have to fill out an online application or paper, and if approved, the lender will grant you the capital you borrow.
So, to get the funds, you’ll have to write a check to the lender for the capital that you want to borrow in addition to the fees. At your next payday, the lender here will either cash the check, if you have written one, or debit your checking account for the money or any additional fees if you have authorized it.
Lenders will usually ask to check the proof of an active bank account or prepaid debit card account, income and age. Max loan amount allowed by state varies, and can vary by lender. But, it is usual to check the max though some range high and some low.
What Is a Cash Advance?
Cash advance loans is a short term loan from a bank or alternative lender. Cash advance also refers to a service provided by many credit card issuer allowing the card holder to withdraw some amount of cash. This usually, features steep interest rate and fees, but they’re attractive to borrower as they feature quick funding and fast approval.
How a cash advance works
If you carry only credit cards for daily spending, you’d find that when confronted with a cash only situation like buying lunch from a street vendor, sandwich at a mom and pop deli or veggies at the farmers market. Here, a cash advance will be very tempting and many will turn to credit cash advance when they require paper money which they’ll not have enough in their balance.
In case your credit card has a PIN, you can get cash advance directly from an ATM. Otherwise, you can take your card to a bank that offers advances through the card payment network like Visa and Master card. There, you will have to show your ID.
So, beware that most credit card companies won’t allow you to take your entire credit line in the form of a cash advance. For many, cash advance is capped at a few hundred dollars. This means, you cannot rely on your credit card to render you with much cash in the advent of an emergency.
Why use a cash advance?
Even if there are lots of costs related with a credit cash advance, you may still wish to consider one in certain conditions.
In case you are traveling in a foreign country and don’t notify your bank of the travel, you might end up stranded without access to local currency. If it suspect fraud activity, your bank might place a hold on your saving account or checking, leaving you disconnected from your cash. Generally, you can clear this up with a simple phone call, but you might not have access to international calling, or cell service, or have trouble connecting with a bank representative because of time difference. So, as long as your credit card isn’t blocked, you can use it to take out a cash advance.
Other time when you may require cash that you don’t have in the bank including hiring a small business, babysitter, housekeeper, landscaper, plumber that doesn’t accept credit card. However, you can bear in mind the interest that can add up, therefore it is wise to ensure you only borrow what you can pay back.
Now, you can also decide on cash advances in other cash only conditions, like when your landlord doesn’t accept credit cards when you are short on rent.
Alternatives to cash advance loans
In case you find yourself facing a cash crisis and you are unsure where to turn, you can consider few options given here below. None of these are ideal, but they might end up costing less than a cash advance in the long run.
- Personal loans – This will be quite costly when your credit isn’t great, but the interest terms and charges will be more favorable than a cash advance.
- Borrowing money from family/friends – This will be awkward, but the saving will be worth it.
- Overdrawing your checking account – Instead of taking a cash advance at an ATM, you can overdraw and check account with your debit card. You will face a fee, but don’t have to worry about paying interest.
In summary, taking a cash advance on your credit card will mean taking on a very costly short term loans. This is never a good idea; therefore it is wise to consider all other options prior to using a cash advance.
Payday alternative loans – These amount of loan which you can find at many federal credit unions, do come with various consumer protection. For instance, under National Credit Union Administration guidelines, the cash loan cannot be rolled over into a new loan, and the terms range from 1 to 6 months.
Credit card cash advances – A credit card cash advance lets you take out cash against your credit card’s line of credit. Even if expensive, you will generally pay a fee and high interest rate than what you pay on credit card purchases. They are still less costly than a cash advance loan if they are repaid immediately.
Credit counseling – Look for a non-profit credit counselor than can explain your options and help create long term financial solution to any cash flow or debt problems.
The Bottom line
Cash advance loans are simply payday loans dressed up as a convenient way to access cash. However, they have costly amount that can contribute to trapping borrower in a cycle of debt that is difficult to get out of.
Now, high interest, high cost loans such as payday or cash advance loans must only be considered as the final resort when you are exhausted with other alternatives. However, in case you decide that a cash advance loan is what you require, so prior to applying for you, you must ensure you work what you own into your budget for the next payday so that you can ignore the cash advance trap.