If you need money fast, you may be tempted to consider a cash advance loan. There’s no doubt cash advance loans are a convenient and fast source of cash for emergencies. However, they are also a very expensive source of credit that everyone should avoid unless it’s a real emergency, and there are other choices.
Here is what you need to know about cash advance loans, how much they cost, and some alternatives to consider.
What are cash advance loans?
A cash advance loan goes by several names, such as payday loans, check advance loans, and advance cash loans. These are short-term loans that you can get from an online lender or payday loan store.
Cash advance loans are often small, ranging from $50 to $1,000, depending on your state’s laws. For example, the highest lending cap is $1,000 in Delaware, Illinois, and Idaho while the lowest lending cap is $300 in Montana and California. The most common cap is $500. The main selling points of payday loans are that they are fast, easy to get and don’t require a credit check.
Note that cash advance loans are not the same as credit card cash advances. A cash advance is a service some credit cards offer that allows you to get a short-term cash loan at a bank or ATM. Consider it like using your credit card to “buy” cash rather than goods or services. Although credit card cash advances are not cheap — expect an APR close to 30% — they are much less expensive than regular cash advance loans, which is usually in the triple figures.
How cash advance loans work
Let’s assume that your car breaks down and you need $500 for the repairs. You don’t have a credit card and you don’t want to ask your friends or family for a loan. You could visit a a cash advance lender, such as CashNetUSA. The lender will ask you for some basic personal and financial information, such as bank account number and your employment details.
If your application is approved, you will receive the $500 in your account within 24 hours. Cash advance loans are not cheap. The financing fee will vary depending on the lender and the laws in your state. A $75 dollar fee for is typical.
Loan terms are short, about 14 days. Once that period is up, the lender will deduct the $575 from your bank account. If you contact the lender and ask them not to take that payment, you will have to pay additional fees to delay payment for another 14 days.
When should you use a cash advance loan?
The quick answer is in an emergency, and you are out of options. Before you consider high interest rate loans, try and get a loan from friends or family. If that is not possible, consider some of the alternatives we mention below.
Nevertheless, the truth is that twelve million Americans use cash advance loans each year. They are popular for several reasons. Cash advance loans are easy to get, since usually anyone with an income, a valid ID, and a checking account can qualify. These are also a popular choice for borrowers with bad credit, as these loans don’t require a credit check.
The biggest benefit of cash advance loans is that they provide fast cash in emergencies. A recent Federal Reserve report indicated that almost half of Americans couldn’t afford a $400 emergency expense with savings. So, if a car repair, medical bill, or home repair hits and you don’t have money in the bank to cover the cost, a payday loan is one option.
The costs associated with a cash advance loan
Many people fail to realize that payday loans are the most expensive option for borrowing money on the market. The typical rate on a storefront cash advance loan is $15 for every $100 borrowed. (Source) On the surface, this doesn’t seem like a lot, but the annual percentage rate (APR) for that two-week loan of $100 comes out at 391%.
In most cases, the APRs for payday loans can be anywhere from 400% to as high as 5,000%. While state laws have tried to put caps on these with what are called “usury laws,” many lenders have found loopholes. Some states, such as New York, no longer allow payday lending at all.
Nevertheless, cash advance loans are still useful as short-term loans in emergencies.
How to compare costs and calculate your APR
If you decide to use a payday loan to get you through a financial emergency, it’s important that you do your homework and understand costs. The best way to do this is to figure out the APR for the amount that you’re borrowing.
Some payday lenders won’t provide this upfront, but they should if you ask for the information. You can calculate the APR yourself with a simple formula.
Let’s assume you are taking out a loan of $300, with a 14 day repayment period. The lender is going to charge you an additional $50 in fees and interest. Here is how you calculate the APR:
APR = (Cost of the loan/Amount of the loan) / Length of the loan (days) x 365 days.
To illustrate, consider the APR of a $300 loan with a $50 fee.
APR = ($50/$300) / 14 days x 365 days
APR = 4.35 or approximately 435% APR
Cash advance loans and the military
If you’re in the military, you may not qualify for a cash advance loan. There are specific laws that protect active-duty military and their dependents from high-interest payday loans. The APR on a cash advance loan to this group cannot be more than 36%, and lenders must provide paperwork to borrowers that explains their rights.
If you are in this group, there are military aid societies for each branch that may help.
- Air Force Aid Society
- Army Emergency Relief
- Navy and Marine Corps Relief Society
- Coast Guard Mutual Assistance
How to get a cash advance loan
It’s fairly simple to qualify for cash advance loans online. For most loans, you need to present a valid ID, be at least 18 years old, show proof of income, and have an active checking account. Your credit score or lack of credit doesn’t matter.
Although cash advance lenders don’t check your credit with the main credit bureaus (Equifax, Experian, and TransUnion), they will check alternative consumer reporting agencies, such as Clarity Services, to make sure that you don’t have any other payday loans outstanding. They’ll also confirm that you don’t have bad checks, wage garnishment, judgments, or other negatives that could affect your ability to repay the loan.
- You don’t make enough money.
- There is already an outstanding payday loan.
- You have a recent bankruptcy.
- You have a history of bounced checks.
- Your employment date is too recent.
- Your bank account is too new.
- You are active-duty military (Some lenders exclude these customers).
While getting an advance cash loan is a simple process, not everyone qualifies. You might be denied for several reasons. These include
Cash advance loan alternatives
Even if you have poor credit, there may be some other options available to you besides cash advance loans. Consider asking for help from friends or family, getting a second job, or searching for a personal loan.
When you take into account that payday loans have triple-digit APRs, the higher interest rates on a personal loan for a poor credit applicant don’t seem quite as bad. Also, personal loans are term loans, which means you will have more time to pay back the loan.
Take a look at OppLoans, which is short for Opportunity Financial. The company offers personal loans to people with poor credit who want to avoid payday loans. Loans range from $1,000 to $10,000 with APRs that range from 36% to 199%. A typical loan with the company is $1,000 with 17 bi-weekly payments of $81. This would be the same as a 99% APR. Loans are often funded within one business day.
Another advance cash loan alternative is a car equity line of credit. If your vehicle is worth more than you owe on it, this could be a good choice for some quick cash. Finova offers affordable title loans of $500 to $5,000, with interest rates up to 30%. Borrowers repay over 12 months, and there is no credit check required for this loan.
FAQ on cash advance loans
What is the difference between a loan and a cash advance?
Unlike credit card purchases, a cash advance will typically start accruing interest immediately. In other words, there’s no interest grace period like you get for normal purchases. Similarly, a payday loan comes with immediate interest. The key difference is the time horizon for repayment.
What is a credit card cash advance?
A cash advance is a service provided by most credit card and charge card issuers. The service allows cardholders to withdraw cash, either through an ATM or over the counter at a bank or other financial agency, up to a certain limit. Cash advances often incur a fee of 3 to 5 percent of the amount being borrowed.
How does a cash advance loan work?
A cash advance is a small, short-term loan that typically must be repaid on the borrower’s next payday. You give the lender a check for the amount of money you want to borrow – plus a fee. The lender keeps your check and gives you cash – less the fee they charge. On your next payday, you have to pay the lender in cash.
Do cash advances hurt your credit?
While simply taking out a cash advance and paying it back promptly will not affect credit, neglecting to pay back the loan will. Cash advance payments are meant to bridge the gap between bill due dates and your next paycheck. As long as the loan is paid back promptly, a cash advance does not hurt your credit score.
What do I need for a cash advance loan?
If you meet the initial requirements for an Amscot Cash Advance, you will need to bring to the branch your:
- Proof of income – such as your latest pay stub or bank statement.
- Identification – a valid Government-issued photo I.D.
- Checkbook (or bank statement with checking account information)
How to compare lenders and make your choice
When you need quick cash, it might be tempting to rush to the nearest lender, but this could be a costly mistake. Taking just a few minutes to shop around and weigh your options could save you a ton of money and heartache in the long run.
Take the time to research cash advance loans online, and make sure that this is the best choice. Calculate the APR for the money you’ll be borrowing and ensure that you can pay back your loan quickly so that you don’t get caught in an endless payday loan cycle. Better yet, look at a few of the alternatives to see if they might work for your needs and save you money. You can find the best payday loan companies, compare rates and products with user reviews here.