Perhaps each of us was faced with the need to receive money here and now. Unfortunately, financial emergencies happen. In addition, sometimes we may not be able to pay rent for various reasons. Of course, you can borrow money from friends, but this is not always a suitable option. Therefore, cash advances are a fairly popular option among Americans.
What is a Cash Advance?
In some circumstances, the term “cash advance” may have distinct meanings. In general, there are three different kinds of cash advances. They consist of:
- Payday loan cash advance: The payday loan functions largely as its name suggests. Know the facts before you borrow because these loans frequently come with additional fees in addition to their high interest rates. When your allocated payday comes around, the money is then immediately taken out of your account (together with any applicable interest and fees).
- Credit card cash advance: You can use a credit card cash advance to withdraw money from an ATM with your card. Most credit card companies charge higher interest rates than usual for these types of transactions, and any discounts or promotions that your credit card company may provide might not apply.
- Merchant cash advances: Businesses with less-than-ideal credit that require immediate cash only use merchant cash advances. In comparison to most traditional loan options, it provides businesses with quick access to the money they need and has fewer onerous credit standards and time restrictions.
Pros and Cons of Cash Advance
Like any other financial product, cash advances have their advantages and disadvantages. It is important to know and understand them, then you can make an informed decision, evaluating all possible risks.
Pros of Cash Advance
- For people who need money right away, cash advances are a great alternative because they give immediate access to cash.
- Cash advances, in contrast to other types of loans, don’t demand any security. People who don’t have valuable assets to use as collateral for the loan are now able to access cash advances.
- Cash advance can be obtained online or at an ATM. For people who are unable to visit a bank or other financial institution, it is therefore quite convenient.
- Most cash advance lenders don’t require a credit check, making it an attractive option for those with poor credit scores.
- Any purpose is acceptable for using cash advance loans. They provide borrowers freedom over how they spend the money.
Cons of Cash Advance
- Due to their hefty costs, cash advance loans might be more expensive than other types of loans. The charges could include interest rates, transaction fees, and costs for cash advances, all of which can mount up very rapidly.
- Cash advance loans often come with high-interest rates. These rates are typically much higher than the interest rates on credit card purchases. This can make it difficult for borrowers to pay back the loan, especially if they have a low income.
- Short repayment terms – typically two weeks to a month – apply to cash advance loans. This implies that borrowers must pay back the loan as soon as possible. If borrowers also have additional expenses to pay for, it could be challenging.
- Late or missed payments on cash advance loans can negatively impact the borrower’s credit score. As a result it can be difficult for them to access credit in the future.
- Because of the high fees and interest rates, it can be easy for borrowers to fall into a debt cycle where they take out more cash advance loans to pay off existing debts.