A cash advance loan is often seen as a quick solution to address a financial emergency. Before you apply for cash advance loans online, let’s address some important questions.
Is it the best solution?
This type of loan is for a person who needs cash immediately. Someone may also suggest you apply for cash advance payday loans online. This is another term used for cash advance loans. This type of loan is also known as no credit-check loan or guaranteed loan. There are plenty of options available for cash advance loans online. However, you should keep in mind that the fee is high. If you are not good at handling your debts, you might get trapped in a cycle of debt.
Cash Advance Loan
It is a short term loan in which the application is processed very quickly. You have to fill out a paper or apply for a cash advance loan online. If the application is approved, the lender will give you the borrowed money after subtracting a certain fee. The lender may also ask you to write a check for the borrowed amount plus the fee. At the next payday, the lender will either cash the check or debit your checking account for the borrowed amount and additional fee.
You will have to provide proof of a prepaid debit card account, bank account, income and age. The maximum amount that can be borrowed depends on the lender and state laws. The common maximum amount is $500.
Why You Should Be Cautious With Cash Advance Loans Online
You can take a cash advance loan to address unexpected emergencies. However, if you are going through cash shortfalls then a cash advance loan can make it worse for you. This is the reason why Washington D.C. and 14 states completely prohibit cash advance loans. You have to be careful because of the following four reasons:
The borrowing fees of cash advance loans can equate to APRs ranging from 300% to 500% and much higher. When you take a cash advance loan, you may not realize that the rate is that high. However, if you do your calculations, you will find that it is a debt trap.
You have already paid a high fee. If you are not paying off the debt on time, you will end up refinancing the debt or “rolling over”. And, you will have to pay a new fee.
No Credit Check And No Credit Building
When you are applying for a credit card, auto loan or home loan, the lender always reviews your credit report and checks your credit score. The lender wants to make sure that you can repay the loan on time. If you have a good credit history and score, the lender approves your loan and offers a low-interest rate. Your payments are reported to credit bureaus and this helps in increasing your credit score. On the other hand, a cash advance loan lender does not check your credit report before approving cash advance loans online. Loan approval without checking the credit report; you might find it appealing. However, even if you pay off the loan on time, the lender will not report your payment to the credit bureaus. This does not help in increasing your credit score.
A study by Pew Charitable Trusts reveals that more than 25% of the borrowers claim that their payday lenders have overdrawn. Both the lender and borrower have to pay a fee for an overdraft. This also increases your debt.
Cash Advance Loan Alternatives
Cash advance loans online is not the only option to address unexpected financial emergencies. You can try the following two alternatives as well:
- Payday alternative loans
- Credit card cash advances
Payday Alternative Loans
You can get these small-amount loans at many federal credit unions. These loans provide you with several customer protections. The application fee for a loan is capped.
Credit Card Cash Advances
This option allows you to get cash against the credit card’s line of credit. However, the interest rate is high and you have to pay a fee as well. Still, it is better than a cash advance loan.
You can also get advice from a nonprofit credit counsellor to learn about other options.