Cash advances are convenient options whenever you are in immediate need of funding. They are quick and easy to apply since they don’t require a credit check. But the fees and interest depend on the amount you want to borrow, so it’s a more viable option for short-term financing.
You need to know all types of cash advances to have a better understanding of which one will be best for your needs.
Credit Card Cash Advance
A credit card cash advance allows you to use your credit card to get a short-term loan against your available credit in a nearby bank or ATM. Since you’re borrowing from your available credit, you will have to repay it with interest.
How does it work?
If you carry a credit card for everyday spending, you could find yourself in a place where you need cash because not all stores accept cards. In these situations, a cash advance is an excellent solution. If your credit card has a PIN, you can get cash directly from a nearby ATM. If not, you can go to your nearby bank and ask for a cash advance. Just remember to bring an ID for identification purposes.
Most banks and lenders don’t allow you to take your entire available credit for a cash advance. They tend to limit the amount of money you can borrow. It means that you can’t use cash advances for big purchases or bills.
Getting a cash advance is easy, but it can cost a lot because it has several fees attached to it, not to mention the interest rate. Your credit card issuer imposes cash advance fees. Usually, the charges are $5 to $10 per cash advance. Some issuers make you pay a percentage of the amount of money you advance. Also, the bank fees are separate.
The most cost you’ll have to pay is the interest. The interest rate of cash advances is typically higher than the interest you pay while purchasing things. Also, there’s no grace period; you’ll immediately start accruing interests once you get your cash advance.
Merchant Cash Advance
Having access to additional funding is essential if you’re a business owner; especially, when your business’s cash flow is fluctuating. Before lending you money, the MCA lender will evaluate the risk and credit criteria of your business. It’s to ensure that your business will pay back the money.
Rates on an MCA are often higher than the traditional business loan you get from banks; however, they are easier to get approved. Banks and lenders can offer you MCAs when your business is not qualified for a business loan.
There will be an agreement between the provider and your business regarding the amount of cash advance you’ll get, the holdback percentage, and the payback amount. Once the deal is set, the provider will transfer funds to your business account.
Each day, your business will pay back the cash advance through a certain percentage of the daily revenues or credit card receipts. This process is called a holdback which will continue until the whole amount is paid in full.
Unlike a traditional business loan, where it requires collateral, MCAs don’t need one since they have access to the business owner’s merchant account. In addition, since the repayment is based on sales, the more income a business has, the faster it will pay the MCA in full.
A payday loan is a cash advance loan that you can take for immediate expenses, and You can repay in full on your next paycheck. Payday loans differ hugely from personal or other types of loans. These loans are much easier to get approved, and you can get your money as fast as the next day. Since payday loans have such short repayment terms, they tend to have high APR.
Advance on Student Loans
If you’re under your college’s student loans program, you’ll be disbursed or paid out by the financial departments of your college. But generally, the financial aid doesn’t start until the classes start.
However, if you got your student loan from the United States Department of Education, you can fill out a form and apply for early financial aid. You will then get the money via check or cash.
But getting an advance while applying for deferment or forbearance is quite complicated. If you don’t know the difference between the two, you can refer to CreditNinja’s take on forbearance and deferment article.
If you’re short on cash on hand, there are many types of cash advances you can take advantage of in any situation. However, cash advances tend to have expensive costs, so it’s generally advised that cash advances should be a last resort or only used when extremely necessary. But when you need them, they are reliable, fast, and easy to get.