We’ve all been there, that time where there doesn’t seem to be enough money at the end of the month. Payday is a few short days away yet you need funds now.
This is the idea from which the cash advance loan or payday loan was born. Cash Advance loans are extremely short-term loans and are typically repaid when you are paid next.
These products are designed to help cover short-term financial needs and this ultimate guide will go over many of the factors to consider before applying.
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- What Are Cash Advance Loans?
- How Cash Advance Loans Work
- Reasons You May Need a Cash Advance Loan
- How to Calculate APR
- Options for a Cash Advance Loan
- Advantages of a Cash Advance Loan
- Disadvantages of a Cash Advance Loan
What Are Cash Advance Loans?
Cash advance loans, also known as payday loans, are short-term financial loans that are typically repaid with your next paycheck or within 30-days. While these loans are unsecured, they use your income to gauge how much will be lent to you.
These loans were designed to assist people that are in a short-term financial bind or simply need their paycheck a few days earlier. Cash advance loans can be applied for online or in person, depending on your location.
You can simply hop on Google and fin the nearest location or find online lenders.
How Cash Advance Loans Work
As with any loan, the application process is similar in that you’ll need information such as address, social security number and proof of income. The proof of income is important because that is a main component in deciding how much you are approved for.
While lenders will not check your credit from the 3 major credit bureaus (Experian, Transunion and Equifax), they will check alternative credit bureaus such as Clarity Services. This helps them know if you have any outstanding payday loan debt.
The application process is simple and should only take 15-minutes or so. Once you’ve completed the application you will typically receive a decision immediately.
If approved, funding is likely to be completed within 24-hours and you can begin spending as you need.
Should you complete the process in person, you may receive a physical check, otherwise funds will likely be deposited straight into your bank account.
Reasons You May Need a Cash Advance Loan
We get it, life happens and you may need additional funding to get you by until next payday. One of the main reasons you may require a cash advance loan is due to an emergency.
Life happens quickly and no one plans to get sick or have a car repair. One of the main reasons you may need a cash advance loan is just that: to fix a vehicle or cover unexpected medical costs.
Top Reasons to Get a Cash Advance Loan
- Car repairs
- Emergency medical expenses
- Emergency home repairs
- To cover rent
- To loan money to family or friend
- Turned down from a conventional loan
- To cover grocery expenses
- It doesn’t require a credit check
- To make time-sensitive purchases
- Purchase a new appliance
- To cover an auto loan payment
- To pay for trade school or continuing education expenses
While the loan sizes are smaller with cash advance loans, you can likely cover numerous living emergencies.
Top Reasons You Might Be Denied for a Loan
- You don’t earn enough money
- You have outstanding payday or installment loans
- You’ve filed for bankruptcy
- You have a history of bounced checks
- New, recent employment
- New, recent bank account
- You are active military
How to Calculate APR
Cash advance loans are expensive. Why? Mostly because the lender is taking on significant risk by lending to a borrower with bad credit.
That said, here’s an example of the costs you can expect.
Example: you are taking out a loan of $500, with a 14 day repayment period. The lender will charge you $50 in fees and interest. Here’s how to calculate the APR yourself:
APR = ($50/$500) / 14 days x 365 days
APR = 2.61 or approximately 261% APR
Options for a Cash Advance Loan
You have to be cautious with cash advance loans. There are a lot of scams and you could end up paying much more in interest and fees than you should.
It may even be more beneficial for you to get a personal loan.
Our top picks for a personal loan with bad credit are:
Opploans is short for Opportunity Financial. The company offers installment loans to consumers with poor credit. One of the benefits of Opploans installment loan program is you have more time to repay the loan vs. a payday loan.
With Opploans, you can get a personal loan from $1,000 to $10,000. APRs typically range from 36% to 199%.
You can read our full Opploans review here >>
Advantages of a Cash Advance Loan
One of the advantages of a cash advance loan is the application process shouldn’t take more than 15-minutes. Since these are short-term loans, you won’t need information pertaining to any sort of collateral. This makes them an option for short-term financial needs.
Another advantage is that these loans are not secured by an asset. Having an unsecured loan means if worst case scenario you are unable to repay the loan, you won’t have to worry about your vehicle being repossessed or a lien put on your home.
The final advantage is the funding process is extremely quick compared to other options, making it an advantageous option for those needing cash fast.
Disadvantages of a Cash Advance Loan
As with any financial product, they’re not always full proof and there are disadvantage. The first disadvantage to consider is this is an expensive form of borrowing. You will notice that the interest rates on these products are significantly higher than a standard personal loan or credit card.
That being said, these should only be used as a short-term financial solution and not relied upon as a long-term financial solution.
Another disadvantage is it can make a financial situation worse, especially if it’s known the loan will not be repaid.
This lending product should only be used if it can be repaid as stated on the loan documents. Otherwise, you will be stuck with additional fees and costs that make the situation worse.
Cash advance loans are a product designed to help short-term financial emergencies and should be treated as such. Be sure to do your research and find the best option if this is something you need.
Also, ensure you can repay the loan, otherwise there is little upside in taking out the loan.