It seems like life in the United States is getting more and more expensive. It is no wonder that there are so many people struggling with their finances. Even if you put all your effort to sustain a stable financial state, there is always the possibility of something unexpected cropping up.
In situations where people are confronted by emergency expenses, they often look for financial assistance. Among many types of loans, many borrowers find the help they need in a cash advance.
Financial assistance can come from a number of places. Some people ask their friends and family to help them with their bills, some try to get an advanced payment from their employers. But the majority of people who are in need of financial assistance look for it in the loan lending industry. Below, we will discuss what a cash advance is, how it works and what are the different types.
What is a cash advance?
A cash advance (also commonly referred to as a payday loan) is one of the most popular types of short-term loans.
The borrower is able to take out a certain amount of money which he then must usually repay within a month. The service is provided by many credit card providers, loan lending companies and banks. It allows borrowers to withdraw a certain amount of money either from an ATM, from a bank, or from another financial institution. Usually, cash advances have higher interest rates and fees compared to many loan types. However, they also have many features that attract borrowers.
Unlike many traditional loans from conventional loan lending institutions, cash advances have a very fast and simple application process, quick approval and quick money transferring.
The amount of the payday loan can vary depending on the specific cash advance type, but most borrowers are allowed to take up to $500 with a loan term of no more than two weeks. Since they have a rather high-interest rate and fees, cash advances should be used mainly during an emergency financial situation. If you cannot repay your quick loan on time, you risk finding yourself in a situation much worse the one you were in prior to taking out the cash advance. So if you do not want to fall into a debt cycle, do not go for a cash advance unless you really need it and unless you are perfectly prepared to repay it on time.
How does a cash advance work?
Even though it may feel a bit similar to using a debit card at an ATM, a cash advance is something quite different. When using debit cards, the money is instantly drawn out from your account to pay for your purchase.
If your account does not have enough money in it, you simply will not be able to make your purchase as the payment will be declined. With credit card cash advances, the money you spend is shown in your account as a charge. Since credit card cash advances are actually loans, they do come with certain interest rates and fees which are normally higher than a usual credit card purchase. Therefore, if you plan on using the cash advance option on your credit card, you should first know exactly what the fees and interest rate are going to be.
Different types of cash advances
Merchant Cash Advances
A merchant cash advance is a certain amount of capital that a company receives from a bank or a cash advance lender. Usually, companies that do not have perfect credit score use merchant cash advances to finance their business.
The received amount of money is then repaid over a certain period of time, with the cash advance lender receiving a certain portion of the borrowing company’s monthly sales.
This goes on until the merchant cash advance is fully repaid, including interest rate and fees. Such merchant cash advances are available to business with bad credit score due to the fact that the cash advance lenders are normally interested in the business monthly revenue rates, therefore, their ability to repay the loan.
Payday loans are the most popular type of cash advances. They are a small sum, short-term loans which the borrower takes out and has to repay by his next payday. The usual amount of money that direct payday loan lenders provide to their borrowers does not exceed $1000.
Normally, the length of a payday loan is no more than 14 days. Each state, however, has its own cash advance (payday loans) law regulations and so the terms and conditions of each payday loan can be different.
Payday loans have higher interest rates than most types of loans, with a possible annual percentage rate of more than 390%. That is why payday loans should be used as a last resort option to deal with emergency expenses.
Cash advance from your employer (company programs)
Taking a cash advance from your employer is another viable cash advance option. The interest rate and fees of such cash advance may vary depending on your company’s specific policies. If you are thinking about borrowing money from one of your company’s cash advance programs, do not forget to read every detail. This includes interest rate, fees, and other charges. In order to be eligible for a cash advance from your employer, you must have worked in the company for at least 90 days. You would need to have an active bank account so that the money can be directly deposited there.
Credit card cash advance
This type of cash advance depends more on your available credit card limit and not so much on your monthly income. Normally, a credit card cash advance is similar to a purchase made with your credit card, and so the repayment terms depend on your credit card policies. A credit card cash advance may or may not be a better option than a payday loan. This is highly dependent on your credit score and the specific terms of your credit contract. There are credit card companies that charge higher interest on cash advances compared to standard purchases.
Direct deposit advance (DDA)
Direct deposit advances are another form of cash advances. Direct deposit advances are a lending tool with which banks give their customers advances on their deposits. Then, once the deposit is made, the bank recoups the loan as well as the fees that go with it. Usually, the direct deposit loan repayment is taken out of the account before any other checks.
Cash advances can be a great option to deal with a difficult financial situation if used correctly. If you have any doubts about your ability to repay the payday loan on time, you may want to look for some other alternatives. They also have minimal or no credit checks and same day approval which is great if you happen to be in that category. There are plenty of ways to get financial assistance. You just have to find the one that best suits your specific financial situation. No matter what form of financial help you choose, always calculate your budget and spare no effort to make your payments on time.