What Type of Loan is a Cash Advance?

Learn about different types of cash advances and how they work, including payday loans, merchant cash advances (MCA), credit card cash advances, student loan refinancing loans, and more.

What Type of Loan is a Cash Advance?

A cash advance is a short-term loan from a bank or alternative lender. It is also a service provided by many credit card issuers that allows cardholders to withdraw a certain amount of cash. Merchant Cash Advances (MCA) are funds extended to small business owners based on past and projected sales. If your business has a decent amount of daily credit and debit card sales, you can likely qualify for the funds in a few days.

Payday Loans are another type of cash advance that gives you access to future payments from your employer. To qualify, you usually need to provide proof of income, such as a previous paystub. You can access the funds in person or online. Payday loans are secured by a deferred filing transaction and require the borrower to provide a personal check with a later date or permission for a future electronic withdrawal.

Some states allow lenders to extend or renew loans if the borrower is unable to repay the loan plus fees in full. Depending on the state, these charges could include financial charges, interest, late fees, or insufficient funds charges. The true cost of payday loans means that you almost always have better options. Credit cards may designate multiple APRs for different types of cash advances.

Bank of America assigns APR to direct deposit and cash advances with checks and a higher APR to banks' cash advances, including ATMs, over-the-counter, overdraft protection and equivalent transactions. A payday loan or cash advance loan is a short-term loan with fees attached. The funds can also be secured by other income sources such as pensions or Social Security. Payday loans are intended to be small-amount loans and must be repaid before the next payday.

Cash advances have the potential to adversely affect your credit rating, depending on the amount you borrow. They also come with high fees and the danger of being caught in a debt cycle. If you're considering getting a cash advance, there are better options available such as free cards with lower APR than the industry standard for cash advances. Student Loan Refinancing Loans offered through Lantern are private loans and do not have the debt forgiveness or repayment options offered by the federal loan program or that may be available, including income-based repayment or income contingent payment or pay-as-you-win (PAYE). Interest begins to accrue immediately on cash advance transactions, while credit card terms will determine when interest will begin to accrue on those purchases. So how do cash advances work and what are the different types? And more importantly, how much can you borrow and how much will it cost? If you have an emergency expense, you may be able to charge it to your credit card instead of receiving a cash advance. Please also note that there are several different loans under the umbrella of “business loans”, including SBA loans and unsecured loans.

Personal installment loans are also a good option for borrowers who like to make regular, stable payments and need more than a few weeks to repay the loan. Cash advances have more flexible payment terms than other types of loans since they can be repaid depending on the borrower's preferences. However, they often carry high fees and can quickly lead you into debt if not managed properly.

Christi Costell
Christi Costell

Wannabe internet ninja. Proud problem solver. Amateur zombie fanatic. Subtly charming bacon geek. Certified food trailblazer.

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