Like many record deals, infomercials, and pyramid schemes from the 80s, the infamous cash advance can many times be too good to be true.
Yes, it offers cash to you when you need it to cover unexpected expenses — a bill, spill, or late-night thrill. Yes, it gives you the ability to buy things right off the bat without a credit check or underwriting, but in the end, the extra fees and interest you have to pay on that advance far exceed the benefits of having “fast cash.”
So today, we will talk about cash advances, the types of cash advances, how they work, and the pros and cons.
What is a Cash Advance?
In its simplest terms, a cash advance is a way to access money without applying for an actual loan. They can provide you with cash immediately and do not require a credit check. Usually, the amount of interest or charges you pay is related to how much time you need to repay it and how much money you have coming in monthly. This makes it, so cash advances are more of a short-term solution.
Many cash advances tend to distribute the money in small amounts, each having a fee or interest, and they usually limit the amount you can take out, so they are not the best to cover large expenses.
What Are the Types of Cash Advances?
Credit Card Cash Advances
Have a late-night urge to splurge? These allow you to access cash from ATMs with your credit card. Usually, these will make you pay an initial service fee as well as compound interest. Common up-front flat fees range from $5 to $12 or 3% to 8%, and cash advance interest rates can range from 17.99% and 29.99% APR.
Say hello to short-term unsecured loans. They have large fees and come in small batches and usually go up to $250 – $1000. They are called payday loans because you pay them off before your next paycheck, or there are additional fees. It is true that technically they have 0% APR on them and do not require a hard credit check to get the loan; however, you are usually charged somewhere around $5 for every $20-$25 you take out.
Merchant Cash Advances
Many small business owners also need cash when times get tough. This is where merchant cash advances come in. They offer funds to companies that are just starting or have a lower credit score. Sadly, for a business to get a loan, they need to have a credit history, but if they just started, how can you have a credit history?! This creates a Catch-22 that makes it hard for newcomers to cover costs when they just started a business. A good rule of thumb is to make an LLC even before you go full force with your new business venture. Make a credit card in the business’s name and use it to buy things you can write off — food, transportation, research, supplies, and more.
Pros and Cons of Cash Advances
- Get fast cash with no collateral required.
- Get money with limited resources.
- Easy to get with no hard credit check required.
- Very high fees and APR.
- As soon as you get a cash advance, the interest kicks in.
- You are getting royally ripped off.
So Let’s Talk About This
In today’s age, it’s funny to see how once shady and illegal practices are now ok. In the past, you could go down to a certain place in Brooklyn, meet a guy, borrow money and have to pay them back — or else. Now, you won’t have your knee caps broken, but the interest alone is even making Good Fellas shake their heads in disbelief.
One thing to know is that the system is rigged to take advantage of people who want money and do not have a financial background. With that said, never use a cash advance to buy anything you can’t afford or pay off outstanding debt.
A cash advance should be used for absolute emergencies — this does not include the desire to buy a bottle of top-shelf vodka at a club when you meet that special someone. Unless you can pay off a cash advance within a couple of weeks you should not take them.
Bottom line — cash advances come across as kind, easy, and for the people, but actually, they make The Predator look like a lamb. Yes, as a short-term solution, it can help you, and it’s better than talking to Vinny down the block, but at the same time, realize that if you do not have the money, this is the worst type of debt to accrue.
In the end, be smart. Never fall for fast cash ads that you might find on social media. And always do your research.