Life doesn’t always go as expected, and it’s possible to find yourself in a situation where you’re short on cash. Whether you need some extra money to pay for a last-minute expense or cover an emergency – taking out a cash advance is one way to do that. There are pros and cons to cash advances, so you’ll be aware of both.
In this guide, we’re going over everything you’ll need to know about cash advances.
Understanding what a cash advance is
Cash advances can be fantastic options with the flexibility to cover temporary cash needs and avoid costly overdraft fees. But it’s important to understand that they aren’t the same as a regular loan.
Cash advances are a form of short-term borrowing, often obtained through credit cards, where borrowers can access cash quickly. Loans, on the other hand, encompass a broader range of borrowing options with longer repayment terms and typically involve a more extensive application and approval process.
Types of cash advances
Not all cash advances are created equal. Take a look at the most noteworthy types of cash advance loans you should be aware of.
Like Instacash, many of these products are offered as short-term advances to help customers make bill payments on time, cover unexpected costs and avoid costly overdraft fees, or as an alternative to an expensive payday loan.
Credit card cash advances
If you’re looking for a fast cash advance, credit card advances could be a good option for you. For this type of advance, you’re borrowing against your own credit line. That often comes with higher fees and loan rates.
Get paid early
Also known as On Demand Pay or Instant Pay cash advance, these cash advances allow individuals to access a portion of their upcoming paycheck before scheduled payday. With this type of financing, immediate funds to cover expenses or financial emergencies, with the amount typically limited to a percentage of the individual’s expected income. Repayment is usually deducted from the following paycheck or through an agreed-upon installment plan.
Online cash advances
Online cash advances are another form to obtain cash fast. There are online cash advance apps and websites specifically dedicated to that purpose. They often come with fees and high interest rates and are due in a month or less.
Pros and cons of cash advances
There are good reasons to cash in on a fast cash advance, but you should be aware of the drawbacks, too. Take a look at the pros and cons.
The best part of a cash advance is that it provides the flexibility to cover temporary cash needs fast. If you’re in an emergency, it’s a fantastic option to have available. In some cases, you may not even have to go through a credit check. Other pros to cash advances, like MoneyLion’s Instacash, include no interest, no monthly fees, and no credit checks.
The downsides to some cash advances are mainly that you could wind up owing much more money than you were given. Some come with exorbitant interest rates, coupled with high fees and a due date that comes up fast. If you don’t get enough money together to pay back the advance, you could wind up borrowing against your own interest again, putting yourself in even worse debt.
It’s important to understand not all cash advances are created equal and to do your due diligence to understand the terms and conditions of the advance you’re looking into.
How to get a cash advance
One of the things people like so much about cash advances is that they can be very easy to get. It doesn’t take much to qualify. But there are things you should do to prepare and protect yourself.
1. Determine the amount of money you need
Before applying for a cash advance, determine the amount of money you need. This will help you identify the appropriate lender with the desired limits and what type of cash advance you’re interested in pursuing. Remember, payday loans and online cash advances are typically limited to a few hundred dollars, whereas with credit advances you can borrow as much as your cash advance limit allows.
2. Find a reputable lender
Not everyone offering fast cash advances is trustworthy. You must find a reputable lender before you commit to the cash advance. Numerous online lenders, banks and credit unions offer cash advances. Research all your available options and find one that suits your needs.
3. Check the eligibility criteria
Each lender has different eligibility criteria that applicants must meet. Some cash advances are available without a credit check, others may not be. So it’s important to verify the requirements with a specific lender carefully.
4. Gather your documents
After identifying a lender and checking their eligibility criteria, you must gather all the necessary documents for the application. These might include proof of income, identification documents and bank statements. Some lenders may ask you to postdate a check for the amount you borrowed, plus the fees and interest, and send you on your way.
5. Fill out the application
Most lenders have online application forms you can fill out from the comfort of your home. Others may have you fill out the application in person. Ensure you provide accurate information and that you understand the terms and conditions of the cash advance.
6. Wait for approval
After submitting the application, you’ll wait for approval. Depending on the type of cash advance you’re seeking and the lender you choose, you’ll typically hear back about approval within a few hours or days. Use this time to make a budget to help set up your repayment schedule.
7. Get your money
If your application is approved, the lender will disburse the funds into your bank account. This usually takes a few hours, but in some cases could take a couple of days.
8. Repay the cash advance
By the time you get your cash advance, you should already have a plan for how to pay it back to avoid getting into a debt cycle. Ensure you understand the interest rates, repayment period, and other fees associated with the loan. Depending on the type of cash advance you chose and the lender you contracted with, you may opt to repay the cash advance in installments or as a lump sum.
9. Budget wisely
To avoid unnecessary debt and stress, you must plan your spending wisely after receiving the funds. Remember that you’ll be paying back more than you borrowed. Stick to your budget, and only use the money you borrowed for its intended purpose.
With MoneyLion Instacash, get cash advances up to $500 with no interest, no monthly fee, no credit check. (1)
Tips for using a cash advance responsibly
Cash advances aren’t inherently bad. They can be lifesavers in an emergency. The important thing is to approach your cash advance responsibly.
Only take out what you need
Because you’re going to pay back much more than you borrowed, you should calculate the exact amount of money you need upfront for your cash advance. Don’t take one out to have extra wiggle room or spend money.
Have a plan to pay it back
Because you’ll be paying extra when you give money back to your lender, you should form a plan and a budget for how you’ll get the money together. If your regular paycheck isn’t going to be enough to cover the cash advance when it’s due, you’ll need to find another work-around that doesn’t put you in deeper debt.
Avoid relying on cash advances as a long-term solution
Cash advances are not a long-term solution because the interest rates and fees pile up. They should be considered a last resort. If you’re in a bind, try to find ways to budget more effectively or curb your spending. You can also pick up a few extra hours of work a week through freelance platforms like Uber, Lyft and Instacart. In some situations, a garage sale may be in order.
Alternatives to cash advances
Although the temptation to get money quickly may lead people to make rash decisions, cash advances aren’t the best option for everyone. The high-interest rates and fees may be more than some people are able to pay. There are alternatives to cash advances that could be another option for you.
A personal loan, sometimes called a personal installment loan, is one where you partner with a bank or other financial institution to be given a lump sum upfront. You then pay it back in fixed monthly installments with an interest rate agreed upon upfront. The faster you pay the loan back, the less you’ll wind up paying in interest.
MoneyLion can provide loan offers up to $50,000(2).
Borrowing from family or friends
If you have a family member or friend of means, they may be a bit kinder with loan requirements than a bank would. They’re also less likely to come after your house or car. Talk with your loved ones to see whether they could lend you money for a short time with a low interest rate, and be honest if you need to extend the repayment period you’d agreed upon.
Negotiating payment plans with creditors
If you have missed payments stacking up, it may be time to approach your creditor and see whether you can renegotiate. The lender wants to get some of their money back, so they may be willing to work with you. You could approach them to see whether you could lower your interest rate, pay back only a portion of the debt through an upfront lump sum, or pay a lower amount through installments.
When and why to get a cash advance
Cash advances can be helpful in emergencies, but should not be taken lightly. Although they get money to your account quickly when you need it, they come with high fees that can put you in a debt cycle if you aren’t careful. It’s also crucial to ensure you’re working with a reputable lender.
Do cash advances hurt credit?
Your credit score won’t reflect that you took out a cash advance, so it does not automatically impact credit. However, a high credit utilization ratio can ding your credit score, and cash advances increase your credit utilization.
How can you get a cash advance?
Cash advances can be taken out online, in person or at an ATM. Some credit cards may also have come with convenience checks that let you write checks to yourself.
Can you pay back a cash advance early?
You can pay back the cash advance early, but you will still have to pay the fees associated with the. The interest rate also likely begins being charged immediately, rather than having a grace period.