How Does A Cash Advance Loan Work?
Cash advance loans differ from regular loans in a number of different ways. They are also often referred to as payday loans or short-term cash loans. It is important to understand how they function in order to get the greatest benefit from these types of loans.
1. The Term
The term of a loan refers to the repayment period or how long you have to repay the loan, in total. An online cash advance loan has a very short repayment period, normally 1 month or 30 days. This means that there are no scheduled monthly or weekly repayments but rather that the full loan amount, including interest and other fees, must be paid on the due date.
2. Loan Amount
The loan amount awarded on a cash advance loan is normally very small and dependent on a future income. For example, a payday loan will never be in excess of a person’s net income (income after deductions). This is because the purpose of the loan is normally to cover an emergency need for cash or a shortfall in a month. The loan amount may be greater if another type of future income (such as an inheritance or tax return) will be used to repay the loan and proof of this income can be provided.
It is crucial to pay careful attention to the loan amount and keep it as small as possible. Keep in mind what you can afford to repay on the due date rather than the amount that you require immediately. If you cannot make the repayment in full, additional interest and other charges may apply or the loan provider may force you to take out another loan to cover the first loan.
This can easily result in you falling into a debt trap where you are unable to afford to repay the loans, additional interest or other charges. A loan provider may then take steps to repossess goods or assets in order to recover the loan amount.
3. Interest
The interest charged on a cash advance loan is normally very high due to the short term. Longer term loans can afford lower interest spread over a few months or years in order to remain profitable. Short term loan providers need to make a profit in a much shorter period and therefore charge more interest.
It is advisable to shop around and compare interest rates from different short term or cash advance loan providers. It may also be beneficial to consider applying for a regular loan that will cost you less in the long run and may be more affordable to repay.
4. Security, Collateral or Co-signature
Some loans will require that you provide a security deposit in order for the full loan amount to be awarded. For example, home loans or car finance. Other loans may request some form of collateral. Collateral is an asset or future income that the loan provider can use to cover the full loan amount should you be unable to meet your financial obligation to them.
In rare cases, a bank or other financial institution may require a co-signature on the loan agreement. The person cosigning the loan will become liable for the repayments or full loan amount should you default on the loan.
A cash advance loan does not require any security, collateral or a co-signature. It is one of the most convenient types of loans available.
5. Application Process
The application process is normally very quick and simple for a cash advance loan when compared to the process for a regular loan. This is because it is on a short-term basis, in a small amount and does not require security or collateral in order for the loan amount to be awarded.
You will need to provide your personal information, employment details as well as proof of income in order for the loan to be approved. You should receive approval as well as cash in hand or in your bank account within a day or two of application. This fast processing procedure is the primary reason that cash advance loans are ideal for emergencies.
Cash advance loans are ideal to access cash funds quickly and conveniently when you need it most.