A cash advance may be the fastest way to access extra funds for an emergency expense. This is because you don’t need to apply for a loan and wait for the processing to be completed. Instead, you can withdraw money directly from your credit card and use it for any needs without a single restriction. Although it sounds tempting, you need to keep in mind that credit card companies don’t treat credit card purchases and cash advance transactions the same. So how do cash advance loans work?
In this article, we’re going to answer this question and provide you with some tips on fast approval with minimum cost. Whether you’re new to online lending or a seasoned borrower, you’re sure to find some helpful advice in this guide.
What Is a Cash Advance Loan?
A cash advance loan is a type of short-term borrowing that allows you to get an amount within the set limit and use it to cover your urgent needs. This is a type of personal loan that you can use for any purpose. Typically, a cash advance is considered the amount that you debit from your credit card balance. However, there are also other forms of cash advances that we’re going to review further.
If we speak about credit card cash advances, they track separately from the regular purchases you make with your credit card. Additionally, a cash advance APR is usually higher than the one that is charged when you pay for services and products directly by card. That is why you need to fully understand how it works to make an informed decision.
How Do Cash Advance Loans Work?
Cash advances work similarly to the money you can withdraw from your regular debit card or checking account. However, the core difference is that you have to pay interest in addition to a cash advance fee. More than that, if we compare a credit card cash advance with a regular purchase, we’ll find out that there’s no grace period that can be applied. This means that interest accrues right after you get the money on hand. This means that borrowing cash against your existing credit line is more expensive than paying by card. Thus, you need to use a cash advance only as a last resort and strive to pay it off primarily.
Types of Cash Advances
Cash advances can be divided into three main groups. Let’s take a closer look at each type to find out which can suit you most.
Credit Card Cash Advances
A credit card cash advance is a form of debt that allows you to borrow money against your existing credit limit. This means that your credit card issuer lets you withdraw money from your outstanding balance and use it at your own discretion. This is one of the fastest ways to get extra cash when you need it immediately. At the same time, keep in mind that a cash advance fee can be several times higher than interest charges for purchases you make with the same card. Thus, you should think about how to pay off your cash advance balance as fast as possible.
Merchant Cash Advances
A merchant cash advance (MCA) is a type of financing that is specifically designed for businesses. Unlike traditional loans, which are based on credit scores and financial history, MCAs are based on the volume of a business’s credit card sales. With an MCA, a lender provides an upfront cash advance in exchange for a percentage of the business’s daily credit card sales until the advance is paid off, along with fees and interest charges. However, MCAs always come with higher fees and interest rates than traditional loans.
Payday Loans
A payday loan is a short-term loan that a borrower can access within one business day with any credit. Payday loans are transferred via direct deposit to a borrower’s bank account and must be repaid right after receiving their next paycheque. This way, you can get a cash advance against the future payment from your employer. Payday loan amounts are typically limited to £1,000. This form of borrowing can turn out to be even more expensive than a credit card cash advance. A payday loan cost is usually expressed in a flat fee and can be up to £24 per each £100 borrowed.
Is a Cash Advance a Legit Form of Borrowing?
A credit card cash advance is a legit form of borrowing. However, the ability to withdraw money from your credit card balance is provided solely by a lender. Most lenders will allow you to make a cash withdrawal, but some of them may set restrictions. Please, check your agreement or contact the lender before debiting money.
When it comes to paycheque cash advances, there can be some restrictions set by the Financial Conduct Authority (FCA). These rules set a cap on the maximum amount of interest and penalty fees that can be imposed on you.
Where to Get an Online Cash Advance?
To get a cash advance, you’ll typically need to visit an ATM, bank, or credit card company and bring the card with you. Then, you enter your credit card and personal identification number (PIN) to withdraw the cash. You can also obtain a cash advance from a bank or credit union teller or through an online transfer to your bank account. Keep in mind that cash advances usually come with higher fees and interest rates than regular credit card purchases. Additionally, there may be limits on how much you can withdraw.
Know Your Options: Alternatives to Online Cash Advances
When you need money quickly, an online cash advance can seem like an easy solution. But you need to keep in mind that this borrowing option always comes with a high interest rate and fee and can be difficult to repay. If you’re looking for a cheaper solution, here are a few alternatives to consider.
Personal Loans
A personal loan is a type of unsecured loan that can be used for a variety of purposes. Unlike cash advances, personal loans often come with fixed interest rates and longer repayment terms. This makes them a more affordable option for many borrowers. You can apply for a personal loan through a bank, credit union, or online lender. But keep in mind that personal loans always require borrowers to meet minimum credit score requirements. Also, they come with longer application and verification processes and may not be the best option for financial emergencies.
Peer-to-Peer Lending
Peer-to-peer lending platforms connect borrowers with other individuals who are willing to lend money for a set interest rate. These loans often have lower interest rates than cash advances and can be a good option for those who are looking for a cheaper solution. However, they may take longer to obtain and come with potential risks of your personal data leakage.
Borrowing Money from Family and Friends
While it can be difficult to ask for financial help from loved ones, it can be a more affordable option than taking out a cash advance. If you decide to borrow money from family or friends, be sure to set clear repayment terms and stick to them without delays.
Cash Advances from Your Employer
Some employers offer cash advances to employees in need of financial assistance. These advances are often interest-free and can be repaid through payroll deductions. However, not all employers offer this benefit.
Borrowing Guide to a Cash Advance: Things to Consider for a Pleasant Borrowing Experience
If you want to take out a cash advance, there are a few key things to keep in mind for a pleasant borrowing experience. Here are some tips to help you get started:
- Understand the costs. Before obtaining debt, it’s important to carefully review the cash advance fees and interest rates. While credit card cash advances can provide quick access to funds, they may also be expensive.
- Improve your chances of approval. If you’re going to get a credit card, most lenders will require you to have a steady source of income and a good credit score. Some cash advance providers may also require a certain level of employment or a specific minimum revenue. If you don’t meet these requirements, you may need to consider alternative options, such as payday loans.
- Consider alternatives. If possible, turn to less expensive options to save money on interest. Consider personal loans, borrowing through P2P platforms, or asking for financial help from family members.
- Compare several options. Not all cash advance lenders are created equal. Thus, it’s important to shop around and compare rates and fees from multiple lenders.
- Minimise fees and interest charges: To minimise the cost of your cash advance, try to pay it off as quickly as possible. Consider setting up automatic payments to ensure that you don’t miss any payments.
- Expert Opinion
According to Latoria Williams, the CEO of 1F Cash Advance, “Cash advances can be a useful tool for those who need quick access to funds. But you need to have a solid plan for repayment before taking one out. If you’re struggling to make ends meet, a cash advance can provide temporary relief. But it’s not a long-term solution. Be sure to explore all of your options and carefully consider the costs before getting this form of debt.”
Latoria’s advice highlights the importance of using cash advances responsibly and making informed decisions about borrowing.