Cash Advances: What They Are And How They Work
A cash advance is a small, short-term loan that typically must be repaid on the borrower’s next payday. Cash advance amounts typically range from $50 to $1500, depending on the borrower’s state of residence. Also known as payday loans, cash advances are intended for borrowers who experience unexpected expenses and need extra funds to get them through until their next payday.
Cash advances aren’t meant to be used as a long-term financial solution. But a cash advance may be a good option for those who have unforeseen cash needs due to an auto accident, medical bill, family emergency, or other unexpected expense.
How a cash advance works
Here’s a hypothetical example of how a cash advance can work: Mike, a single father, finds himself in a tight spot when his truck breaks down with more than a week to go until his next payday. He needs transportation to get to work, and to pick up his daughters from daycare. When the auto repair shop asks for payment up front, Mike isn’t sure where to turn until the mechanic suggests a cash advance. Mike visits a local cash advance lender and applies for a cash advance in the amount of $250 – the amount he needs to have his truck repaired. Once the advance is approved, Mike receives the funds he needs immediately and is able to have his truck repaired. On Mike’s next payday, he repays the $250 loan amount and a one-time cash advance service fee .
What a cash advance costs
Borrowers pay a one-time service fee for cash advances. Fee amounts vary slightly depending on the borrower’s state of residence and the amount of the cash advance. Although one-time service fees on cash advances are typically based on a two to four week loan period, U.S. law requires that the fees be expressed to borrowers as an annual percentage rate (APR). The fact is, a cash advance fee can be a less costly alternative to overdrawing your bank account** and may help you cover unexpected expenses.
Qualifying for a cash advance
In order to be considered for approval, applicants generally must complete a brief application and submit it to the lender along with identification, verification of employment and income, and checking account information.
Options for extending the repayment period
By design, cash advances carry a short payback period. But if a borrower needs more time to repay, lenders typically offer some options for extending the life of the loan – such as refinancing or a rollover. Availability, terms, and amounts vary by state.
Choosing a reputable lender
Once an individual decides to apply for a cash advance, it’s very important to choose a reputable cash advance provider. Applicants should look for a lender that fully discloses all of the terms and fees associated with a cash advance,, follows state laws, and clearly explains details about its lending practices. It’s also a good idea to look for a lender that is a member of the Community Financial Services Association of America (CFSA). In order to serve the best interests of cash advance borrowers, the CFSA encourages its members to abide by its Best Practices.