Learn the pros and cons of online cash advances and how to get the best rate available
More than 23 million people fall into the cash advance and payday loan trap every year. These borrowers pay interest rates as high as 500% a year and most end up in bankruptcy.
In fact, more than 19 states have outlawed cash advances because of the interest rates and fees charged on loans.
Fortunately there’s an alternative with cash advances online and a way to get the money you need without sending you into the poorhouse. I used these online loans during the financial crisis but it wasn’t until after learning a hard lesson about cash advances.
Why Get a Cash Advance Online
When I first started falling behind on mortgage payments in 2008, I did what most people do in that situation. I started borrowing from pawnshops and cash advance stores.
I would borrow $500 every two weeks, paying $75 in fees and was just able to keep ahead of the bills…until the next month came around. You can imagine that $75 started adding up. In fact, I ended up paying hundreds in fees just to keep getting that $500 cash advance.
It wasn’t until almost a year doing the cash advance trap that I found the online alternative in personal loans and peer-to-peer. I was able to borrow enough to pay off my debts and get out ahead of my mortgage payments for the rest of the year. That meant being able to focus on something other than just keeping checks from bouncing.
With the money I was saving on fees, I was also able to pay off the loan within a year and get my credit score back to where I was getting lower rates on loans.
Pros and Cons of Online Cash Advances
I don’t want you to think online cash advances are the miracle end to your debt problems. There are pros and cons, especially versus traditional cash advances and payday loans.
Pros of an Online Cash Advance
1) Lower Rates. The biggest benefit of getting a cash advance online versus from a local payday store is the difference in rates. The average rate on personal loans and peer-to-peer lending is 14% with the range on most sites from 6% to 36% a year. That’s way under the 500% interest you see on cash advances through the fee charged on every $100 borrowed.
**Don’t get fooled by loan fees on cash advances. That $15 per $100 adds up and means a triple-digit interest rate that will bankrupt you!
2) Longer payment terms. Online loans also offer longer payment terms so you can actually afford the loan. This is the biggest trick of traditional cash advances, only letting you borrow for two weeks so you’re forced to come back for another loan.
By going online for a cash advance paid off over three-years, you can borrow enough to pay off your credit cards and other debts. You’ll be able to get out from under the weekly rush to find enough to pay the bills and can focus on getting your finances in order.
3) No prepayment penalty. You can pay off an online loan anytime you like and without any kind of fee or interest charge. This means you can save on interest and get out from under your debt as fast as possible.
Of course, prepaying your cash advance usually isn’t even an option because you only have two weeks to pay it off anyway. You’ve also already paid the fees upfront so there’s no sense in paying it off early.
4) No shady loan sharks. Most cash advance stores are legitimate businesses but there are still the pawn shops and payday stores that will try to intimidate borrowers (or worse!) if they don’t pay. This is more common in poor neighborhoods where people might not trust the police to help or where people just don’t have much of an option but go to the local loan shark.
Online cash advance sites are all heavily regulated by each state in which they offer loans and many are owned by massive financial institutions. They make their money off legit loans and not by bullying borrowers.
Cons of an Online Cash Advance
1) Higher rates than some loans. As low as some rates are for cash advances online, they are still going to be higher than a mortgage or refinance. Personal loans (also called signature loans) have no collateral backing them so the lender has to increase the rate for the higher risk.
For really bad credit borrowers, even a personal loan might not be a good option if the rates you’re being offered are 34% or higher. It’s not impossible to get out from this kind of rate but you’re paying hundreds or even thousands in interest.
2) Online loans affect your credit score. This can be a pro or a con, depending on whether you pay off the loan or not. All online cash advances and other loans go on your credit report. That means miss a payment and your credit score will drop…which will make it harder to get future loans and the rates will be higher.
Then again, if you make your payments on-time and pay off the loan, your credit score will increase. This is how I was able to start getting lower rates on each personal loan I took after destroying my credit. As you build that good credit history, it replaces the bad and lifts your FICO score. You get lower rates and approved for bigger loans.
3) Online cash advances take longer. The big draw of payday loans and cash advances is you can get them in less than an hour. You just go down to the store, sign your name in blood (kidding…kinda) and they give you the cash.
Online loans take from 24 to 72 hours to hit your bank account. That’s not really that long and way worth the wait to save thousands in interest but some people just don’t plan that far in advance.
How to Get a Cash Advance Online
The whole process to get a cash advance online takes less than five minutes though it might take a day or two to approve your loan. I’ll run through the application requirements here but it’s very simple.
First you’ll apply to a few loan sites. I recommend applying on at least two or three sites to see who offers the best rates. As long as you apply on multiple sites within the same 30-day period, it won’t affect your credit score and you’ll make sure to get the best deal on a loan.
I’ve listed a few of the websites I’ve used and reviewed below.
- PersonalLoans.com – Loans up to $35,000 specializing in bad credit
- Upstart – Loans up to $50,000 and lower rates but with higher FICO score required
- BadCreditLoans.com – Lowest credit score requirement but loan limits
Requirements for online cash advances are similar to traditional payday loans and in-store advances. You need a job making at least $2,000 a month and a checking account. Borrowers must be 18 years or older and have resident- or citizen-status.
When deciding how much to borrow on your cash advance, add up your credit cards and all the monthly bills you can pay off. This is called debt consolidation and usually means lowering the interest rate you’re paying now.
By paying off your debts with one cash advance, you save on interest payments and make it easier to manage your bills. The money you save on interest can be put back into paying off the debt faster.
While it’s smart to borrow enough to pay off your credit cards and other monthly debt, never borrow more than you can afford. Filling out your application on each loan site, you’ll be able to see the interest rate and monthly payment before you accept the loan.
If you’re having trouble getting approved for a loan or finding one you can afford, try these tricks:
- Lower your loan amount or the time you pay off the loan. Lower loan amounts and shorter-term loans offer lower rates and are more likely to be approved.
- Apply for a shorter one-year loan to improve your credit. Getting a one-year loan to hold you over gives you time to build your credit and you’ll usually get approved for the bigger, longer-term loan after you pay it off.
Best Websites for an Online Cash Advance with Bad Credit
In more than five years blogging and 10 years using online personal loans, I’ve come across a lot of different lenders. After using a personal loan to consolidate debt and save my credit score in 2009, I started this blog to help people find the best options for online loans.
I’ve reviewed more than 37 peer-to-peer and online lenders…and found out that not all loan sites are created equal.
Many of the websites I’ve come across have been little more than the online equivalent of loan sharks and payday loans. Others have seemed like better choices but only a few make the list of regular recommendations by visitors to the blog.
PersonalLoans.com is the most recommended online lender and specializes in bad credit loans. The website is a loan aggregator, meaning it matches borrowers with other lenders to help you find the best rate on a loan. Even on lower credit scores, this usually means your rate is going to be a good deal to consolidate debt or just get a cash advance.
Upstart impressed me with its unique lending model that takes education and other factors into account. This could mean those rejected on other websites for a low credit score might get approved. The site also offers very competitive rates and excellent customer service.
BadCreditLoans makes the list for its rock-bottom credit score requirement though rates tend to be higher on the site. Borrowers with very low credit scores will usually be capped at $1,000 for their first cash advance but you can get approved for higher amounts after paying off the first loan.
Like all personal loan websites, it doesn’t hurt your credit score to apply on more than one site. This is going to make sure you get the best rate available so I’d recommend trying at least two websites before you accept an advance.
Traditional cash advances can be a one-way ticket to bankruptcy and have been made illegal in many states. Rates as high as 500% and the inability to borrow enough to get out of the hole, payday loans and cash advances are financial slavery in the 21st century.
Fortunately, there’s an alternative with online cash advances and personal loans. You can borrow as much as you need to get your head above water and on terms long enough that you can afford the payments. Make sure you always check loan terms before you accept a loan and only borrow as much as you need.