Online Cash Advance: What is it and what are the alternatives?

Whether your account is running low or your credit cards are maxed out, an online cash advance could be a convenient option to secure funds quickly.

Nevertheless, there are significant disadvantages to consider. These loans are expensive and have short repayment periods that can create a vicious cycle of debt. They should only be used as a last resort.

What is a cash advance?

Online cash advances, also known as payday loans, are short-term personal loans with exorbitant interest rates that typically mature on your next payday. They cater to borrowers with previous credit challenges that cannot be approved elsewhere.

Several online lenders offer cash advances. To apply, visit the lender’s website, fill out a brief application, and wait for a loan decision. Be prepared to provide proof of income (i.e. your most recent payslip) and your next payment date so the lender can set a due date for repaying the loan. The lender will also request your routing and checking account number associated with the account to which the funds are to be sent.

You may have to agree to a tough credit check, but this is not common with online cash lenders. Even if they check your credit and your score is on the low end, you could still be approved for funding.

The lender will transfer the cash advance to your checking account if approved. When the due date passes, they automatically deduct the loan amount (including interest and fees) to collect the amounts owed.

But if the funds aren’t available, you could be subject to overdraft or NSF fees from your financial institution. These costs can quickly add up as the lender repeatedly tries to collect the payment. The lender also charges the fees and may allow you to extend the loan (at an additional cost) if permitted in your state of residence.

How is a cash advance different from other loans?

Cash advances are easier to get than personal loans, especially if you have a history of credit failures. There are some other important differences between the two that you should be aware of.

Cash Advance Loan private loan
Prices 150% to 650% 5.40% – 36%
loan amount Up to $500 Up to $100,000
Loan Conditions Two weeks 1 to 5 years
Time to Funding Already on the same day Already on the same day

Interest rates on cash advance loans are inflated due to the risk they pose to online lenders. Still, consumers often turn to these debt products because they fear they won’t have much luck elsewhere. The reality is that some online lenders also offer subprime loans that come with higher interest rates but are still more affordable than what you get with an online cash advance.

In addition, you usually get a term of between one and five years. This greatly minimizes the chance of default, giving you much more time to pay off your debt.

Some borrowers are more attracted to cash advances than personal loans because of the quick funding times. However, many online lenders fund personal loans within 1 business day, and if you choose a cash advance loan, you can get a much smaller loan than you need.

What alternatives are there to cash advances?

Not quite thrilled with the idea of ​​a cash advance to secure some quick funding? These alternatives are far cheaper and healthier for your finances:

Credit card

Consider using your credit card if not depleted to cover your financial emergency. The interest rate is much lower than what you pay with an online cash advance. And if you can pay the balance in full before the due date, you can avoid paying interest on the fees.

Keep in mind that this option is only viable if the credit card is used responsibly. Otherwise, you could be trapped in the minimum payment cycle and spend a fortune on interest over time.

private loan

If you have good or excellent credit and a stable, verifiable source of income, you may qualify for a personal loan with a competitive interest rate. To illustrate, online lender Upstart offers personal loans of up to $50,000 with interest rates as low as 5.40 percent.

Worried that your credit score is keeping you on the sidelines and you may not qualify for a personal loan? As mentioned above, some online lenders cater to subprime borrowers. So you may pay a higher interest rate, but it still beats what you get with an online cash advance.

For example, borrowers with a credit score as low as 580 might be eligible for an Avant personal loan. Loans of up to $35,000 are available and the interest rate is capped at 35.99 percent.

home loan

A home equity loan is another cheaper alternative to an online cash advance. It allows you to convert some of the equity in your home into cash and make payments over a longer period of time. Keep in mind that a home equity loan can take several weeks to complete and you could lose your home if you default on payments.

bottom line

Online cash advances can be tempting in a financial emergency. However, before you commit to this costly and potentially dangerous option, consider an alternative source of funding to get the funds you need.

If you must resort to an online cash advance, make sure you have a plan to pay the money back on or before the due date to protect your financial health.