What are Online Cash Advances and How do They Work?

As of October 2021, consumer debt in America alone totaled about $14.96 trillion. Breaking it down, it was found that the average American consumer debt stood at a whopping $92,727. These debt figures make it interesting to analyze how people borrow and one of the major ways being online payday advances.

Below is an interview with Nick Wilson, an expert loan officer and the founder of AdvanceSOS, as he breaks down online cash advances and how they work. Read on to catch everything Nick says about cash advances.

What’s an Online Cash Advance?

An online cash, often called a credit card cash advance, is basically a short-term loan provided through your credit card. It becomes necessary when you’re confronted with an emergency and unable to get a loan from the traditional banking system.

Such loans feature relatively high interest rates and charges. But they come in handy for emergencies when there are limited financial options for you. Again, you can enjoy the quick approval and funding.

Online cash advances can be broad–also covering loan options like payday loans. A payday loan is a short-term loan that you repay on your next payday through a postdated check given to the lender. It usually features an interest rate determined by state laws and your lender, plus other finance charges. The average payday loan APR is around 400%, which is high compared to credit card loans.

How Do Online Cash Advances Work?

The majority of credit cards allow you to borrow a fixed amount of cash in advance (not beyond your advance limit) and repay with interest. The thing is; your credit card company or credit card agreement has info about your cash advance limit. In essence, you’re not allowed to borrow up to your maximum credit limit. You can only borrow up to your card’s cash advance limit.

Your cash advance accumulates interest, usually calculated as an APR (Annual Percentage Rate) until you repay your loan. The APR adds up similar to when you make purchases or do balance transfers with your credit card, except purchase and balance transfer APRs differ from those of cash advances.

Cash advance APRs are typically higher and you can check your credit card company or agreement to see your APR. Another salient difference between purchase (and balance transfer) APRs and cash advance APRs is that the latter has no grace period! Your interest begins counting right away!

Payday advances or payday loans allow you to borrow a fixed amount, say between $100 to $2000, depending on your state laws and income level. You repay the loan on your next payday, or the lender will cash your postdated check or withdraw from your account, depending on the repayment arrangement. Payday loans are very easy and fast to secure.