A cash advance loan, also known as a payday loan, is a type of short-term loan. It is a high-interest credit option that is based on your income and equity, usually a part of your next paycheck. This type of loan is attractive to borrowers because it has quick approval and fast financing. A cash advance loan can be obtained 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, usually up to 20% or 30% of the available credit limit on the card. Some cards will even allow you to withdraw up to 50% or more of your available credit limit. When you take out a cash advance loan, you will pay fees for borrowing the money, even if the repayment period is only one or two weeks. On your next payday, you will have to repay the loan and fees in full.
Getting a cash advance does not have a direct impact on your credit or credit score, but it can affect you indirectly in several ways. It may seem like a good idea right now, but it can quickly lead you to accumulate debts. If you know there is a cash advance in the future, consider using a credit card that offers 3% cash advances instead of those that charge 5%. This could free up cash in your budget and would not incur additional charges or a higher APR of a cash advance.
If you apply for a cash advance in a foreign currency, you may also be charged a foreign transaction fee. If cash advances are becoming a habit, or if you find that you regularly need one to make ends meet, then you need to make drastic changes to your budget and expenses. Payday loans are extremely expensive and borrowers who apply for them are at a disadvantage compared to the lender. If you write a check above the available cash advance limit, your credit company may not accept it.
Usually, these loans also include a commission, either a fixed rate or a percentage of the anticipated amount. Payday loans are designed for those with poor credit and limited access to traditional debt products such as personal loans and credit cards. However, they can be dangerous if used too often as they can lead to debt cycles.