Is That Cash Advance Loan Really a Cash Advance Loan?
Most loans that advertise as “cash advances” are really just predatory no credit check loans.
You need money and you need it now. Maybe a hippo thought your car was a chair. Or maybe a hippo thought your house was its house. Or maybe the incident didn’t involve a hippo at all, but that seems unlikely since our last seven property damage incidents here at OppLoans were all hippo-based.
If you have good credit, you can probably just get a bank loan, or even an online loan, with good rates and reasonable payment terms. But if you don’t have a good credit score and don’t have friends or family you can ask for money, you’ll end up needing a bad credit loan.
And while these products can offer good financial solutions, you have to be very careful you don’t get taken in by a predatory lender. And a big red flag can be ads for “cash advance” loans that aren’t for cash advances at all.
What is a cash advance?
So what is a cash advance loan? Well, a true cash advance is something you get on your credit card. Instead of using your card to make a purchase directly, you use it at an ATM or a store to get cash, similar to using a debit card.
Or at least, the literal process is similar to using a debit card. What comes next is not.
When you use a debit card, you’re withdrawing money from a bank account for, at most, a relatively small fee. But when you take out a cash advance, you’re actually borrowing that money, which is much more expensive.
Unlike withdrawing cash with a debit card, cash advance loans come with an additional fee on top of the possible ATM fee and have much higher interest rates than you’d get from using your credit card normally.
And that’s not all. Normal credit card purchases come with a one-month grace period. That means you have a month to pay your credit card bill in full without building up interest. With a credit card cash advance, the interest starts building up immediately.
Cash advances may not be a great way to borrow money, but they’re much better than non-cash advances that advertise themselves as cash advances. In reality, those are mostly just predatory no credit check loans.
Regular bad credit loans vs. predatory no credit check loans.
Before we continue, we want to clear something up. You might see the terms “bad credit loan” and “no credit check loan” and think that they’re basically the same thing. But they’re not. Or at least, they aren’t always the same thing.
A bad credit loan is, well, a loan that you can get approved for even if you have bad credit. They come with much higher interest rates than traditional personal loans, but this doesn’t mean they are naturally harmful.
Socially responsible bad credit lenders care about their customers’ ability to repay their loan, which is why many of them will run a “soft” credit check to make sure an applicant can reasonably repay the loan they’re requesting.
Unlike “hard” credit checks, soft checks don’t affect people’s credit scores, so there’s no risk in applying for one of these loans and being denied.
No credit check loans, on the other hand, are a sub-category of bad credit loans. These are loans do not involve any credit checks at all (hence their name). The reason there are no credit checks is that these lenders often don’t care about their customer’s ability to repay their loans.
In fact, these lenders might prefer that their customers be unable to afford their loan. That way, they’ll be forced to roll their loan over, incurring additional interest payments in return for extending their due date.
This process can trap borrowers into a predatory cycle of debt where they are constantly paying more and more towards the interest their loan without ever getting closer to paying off the loan itself.
The kinds of lenders that offer these loans love to label them as “cash advances.” Don’t get fooled!
That “cash advance loan” is probably just a payday loan or a title loan.
Payday loans and title loans are two of the most common types of no credit check loans. And since they are both short-term loans—like an “advance” on your next paycheck—lenders will often refer to them as cash advance loans.
Payday loans have incredibly high APRs and very short payment terms. Imagine having to repay a loan in full after only two weeks while paying a rate equal to almost 400 percent per year. Yikes!
Title loans are a lot like payday loans—high rates and short terms—except you have to use your car as collateral. Picture yourself having to pay a 25 percent interest rate every month on a $1,000 loan with your vehicle hanging in the balance!
And while this is hardly the worst thing about payday loans and title loans, it bears mentioning that paying one back on time won’t even help your credit score. These lenders don’t generally report to the credit bureaus, which means that any payments you make have zero shot of showing up in your credit history.
What’s worse, failing to pay back one of these loans will still hurt your score. Once the unpaid debt gets sold to a debt collector, that collector will report it to the credit bureaus and your score will get dinged.
So is the real cash advance worth it?
That entirely depends. Getting a credit card cash advance is better than a payday loan or title in almost every case—but it’s not going to be better than a regular bank loan, and it’s definitely not better than getting friends or family to help.
In cases where you opt for a bad credit loan, make sure you steer clear of predatory no credit check loans and stick to lenders that care about your ability to repay. In general, you should be on the lookout for installment loans that let you pay your balance off in a series of regular, manageable payments.
If you do determine that a credit card cash advance is your best option, you’ll want to pay it back as soon as possible so that the interest doesn’t add up. The last thing you want to do is build up a huge balance on your card with an even higher interest rate than the one you’re already paying.
For folks who don’t currently have a credit card, we’d recommend applying for one. While using a credit card for emergency expenses isn’t as advisable as, say, building up an emergency fund, it’s still much better than predatory no credit check loans—whether those loans advertise themselves as cash advances or not.
If you don’t qualify for a credit card, consider getting a secured credit card, which requires some cash as collateral. It’s a great way to help build your credit score, plus you can use it during emergencies.
To learn more about cash advances, check out these related posts and articles from OppLoans:
- How to Calculate the Cost of Your Cash Advance
- Can You Get a Cash Advance with a Debit Card?
- Your Guide to Cash Advance Scams
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