Online cash advance: what is it and what are the alternatives

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

Still, there are significant downsides to consider. These loans are expensive and come with short repayment periods that can lead to a vicious cycle of indebtedness. They should only be used as a last resort.

What is a cash advance?

Also known as payday loans, online cash advances are short-term personal loans with exorbitant interest rates, usually due on the day of your next payday. They cater to borrowers with past credit issues that cannot be approved elsewhere.

Several online lenders offer cash advances. To apply, you will visit the lender’s website, complete a brief application, and wait for a loan decision. Be prepared to provide proof of income (i.e. your most recent pay stub) and your next pay date so the lender can set a due date for loan repayment. The lender will also ask for your routing and checking account number belonging to the account where the funds are to be sent.

You may need to accept a firm credit check, but this is not common with online cash advance lenders. Even if they check your credit and your score is the lowest, you can still get approved for financing.

The lender will send the cash advance to your checking account if approved. When the due date arrives, they will automatically withdraw the loan amount (including interest and fees) to collect what is owed.

But if funds aren’t available, you may be subject to overdraft or NSF fees from your financial institution. These costs could add up quickly if the lender repeatedly tries to collect payment. The lender will also assess the fees and may allow you to rollover the loan (at an additional cost) if this practice is 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’ve made credit mistakes in the past. There are other key differences between the two to be aware of.

cash advance loan Personal loan
Rates 150% to 650% 5.40% – 36%
Amount of the loan Up to $500 Up to $100,000
Loan conditions Two weeks 1 to 5 years
Funding deadline From the same day From the same day

Interest rates on cash advances are excessive due to the level of risk they present to online lenders. Yet consumers often turn to these debt products for fear of not having much luck elsewhere. The reality is that some online lenders also offer subprime loans that come with higher rates, but are still more affordable than what you’ll get with an online cash advance.

Additionally, you will typically receive a loan term of between one and five years. This greatly minimizes the likelihood of default, as you will have much more time to pay off what is owed.

Some borrowers are drawn to personal loan cash advances because of the quick funding times. However, many online lenders fund personal loans within one business day, and settling for a cash advance loan means you could get a much smaller loan than you need.

What are the alternatives to a cash advance?

Not entirely sold on the idea of ​​a cash advance for quick financing? These alternatives are much more affordable and healthier for your finances:

Credit card

Consider using your credit card if it’s not maxed out to cover your financial emergency. The interest rate is much lower than what you’ll 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 fees.

Remember that this option is only viable if the credit card is used responsibly. Otherwise, you risk getting stuck in the minimum payment cycle and spending a fortune on interest over time.

Personal loan

If you have good or excellent credit and a stable, verifiable source of income, you may qualify for a personal loan at 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%.

Worried your credit score will keep you on the sidelines and fail to 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’ll get with an online cash advance.

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

Home Equity Loan

A home equity loan is another more affordable alternative to an online cash advance. It allows you to convert some of your home equity into cash and make payments over a long period of time. Keep in mind that getting a home equity loan can take several weeks and you could lose your home if you don’t meet the payments.

At the end of the line

Online cash advances can be tempting when it comes to a financial emergency. But before you settle for this expensive and potentially dangerous option, consider another source of financing to get the funds you need.

If you need to use an online cash advance, make sure you have a plan to repay the funds by the due date to protect your financial health.

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