All of us have experienced running out of money and looking for loans to alleviate our immediate financial problems. Most of us, during this time, apply for loans that are suited to our current needs. However, that can be quite a challenge if you have poor credit.
Most of the time, lenders look at our credit score to determine the loan we can apply for or if we can even get a loan ourselves. One thing we can turn to, though, is a cash advance loan.
A cash advance loan is a type of loan that doesn’t require a credit check, so it doesn’t matter if you have a bad credit score. However, cash advances are not as helpful as they might seem. Sometimes, they can make our financial problems worse and even rack up tons of debt if managed incorrectly.
But how do you know when to get a cash advance and when to take it off your options? To enlighten you, here are the things you need to know about cash advance loans.
What is a Cash Advance Loan?
A cash advance is a type of short-term loan that you can apply for in a bank or an alternative lender that can be paid later on.
As convenient as it can be, it has a pretty high-interest rate. If you think about it, it can be seen as a payday loan, although the latter has a worse reputation.
To sum it up, a cash advance loan is a costly way to get money as quickly as possible. Also, speaking of interest rates, it can go up to much higher levels than your alternative loan options.
If you have resolved to apply for a cash advance loan, here are your options for a cash advance:
1. Credit Card Cash Advance
Credit card cash advance is the most popular type of cash advance. This is because of its simplicity and ease of access. The money you can borrow can be withdrawn from an ATM or through a check that you can get from the bank.
With the usual interest rates and additional fees, a cash advance will carry a separate balance from your credit purchases. However, this is still payable to the same monthly payment.
2. Merchant Cash Advance
Merchant cash advances are loans that are typically utilized by merchants or big companies from a bank or alternative lenders. This type of cash advance is popular among startup businesses or businesses with a less than perfect credit score.
They can also be paid by the usual monthly payment. However, in some cases, they are paid through future online sales and revenue made by the company that borrowed it.
Some alternative lenders don’t check the credit score of the business but instead its creditworthiness. This is determined by the statistics of the business and revenue and profit.
3. Payday Loans
A payday loan is a type of loan that is very similar to a cash advance. While most cash advances refer to your credit score and borrowing limit, a payday loan is based on your future income.
These loans are like bad credit cash advance loans with higher interest rates and strict terms. That said, they still can seem more of a heaven-sent option for some distressed people. A payday loan is like a merchant cash advance of some sort, only more personal.
The Disadvantages of Cash Advance Loans
Here are the cons of cash advance loans:
1. High APR
As mentioned earlier, cash advances have high-interest rates, which can be higher or lower depending on the bank. This is pretty much double the interest rate of other loan options. Also, it doesn’t have a grace period, meaning you will accrue the interest rate immediately.
2. More fees
If you are using a credit card, the bank will make you pay fees, usually a fixed percentage of the total amount you want to borrow. This only makes it worse if you use an unaffiliated ATM with your card, as it will also make you pay another fee, so beware.
3. Affects your credit score
Just like other loans, it will add to your credit utilization and might make your credit score look worse. The higher your credit utilization is, the more significant impact it will have on your credit score. Take note that credit utilization makes up 30% of your credit score.
Cash advance loans are a way to solve your immediate financial problems, albeit with a higher cost and fees than your conventional loans. However, they can be bearable if you manage them correctly by paying it on time and with the right amount of interest. To conclude, cash advances are risky but can be the solution to your problems if utilized correctly.