What is a cash advance? Typically thought to be a withdrawal of money from a credit card, a cash advance is a short-term loan from a lender or bank that comes in many different forms. Regardless of the type of cash advance, advances contain steep interest rates and fees. On the other hand, cash advances offer fast approval and quick funding, making them an attractive option for those in need. Pros and cons aside, here are the most common forms of cash advances.
Credit Card Cash Advance
By far the most common type of cash advance, a credit card cash advance allows carriers to withdraw money from a deposited check, an ATM or a bank. While this method is extremely convenient, easy and requires no approval or paperwork, this type of advance comes with high-interest rates, fees, and no grace period.
One of the fastest growing alternatives for cash advances, payday loans are issued by payday lenders ranging from $50 to $1,000. Credit scores aside, payday lenders determine the amount of a loan based on state regulation and the size of the borrower’s paycheck. Payday loans come with hefty fees and interest rates and are expected to be paid in full with the borrowers next paycheck.
Direct Deposit Advance
Although this type of cash advance was more favorable a few years back, direct deposit cash advances do still occur. Based on the customer’s direct deposits, banks advance cash to the customer’s account. When the paycheck is submitted through direct deposit, the bank takes their payment before other automatic charges are allowed to post. Due to sizeable fees and consumer complaints, many major banks discontinued this practice.
An installment loan is a loan given out with a number of scheduled repayments over a delegated span of time, usually long term. Secured by the borrower’s personal property, installment loans are safer and more affordable than other kinds, and typically takes one business day for funds to be deposited.
Merchant Cash Advance
These advancements are reserved for merchants or companies to finance activities or other business related expenses. Ordinarily, a business owner is given a sum of money up front and then receives a percentage of all credit card sales until the sum is completely paid off. While this type of advance can be beneficial to small business owners, it is important to remember that interest rates for this type of loan are often very high.