If you’ve ever found yourself strapped for cash due to personal emergencies, you’d know the feeling of having no choice but to borrow money from your family or friends. However, there may be situations when they can’t lend you a hand because they’re also having financial problems of their own.
Fortunately, there’s an extensive array of easy online loans to help you during times of crisis. One alternative you have is to apply for a cash loan, which is a short-term, unsecured loan. This lending arrangement is a viable option, especially if you have a low credit rating.
These are the advantages of taking out a cash loan:
- Instant Cash
Cash loans are beneficial for individuals with low credit scores and who need access to funds quickly, as is the case for emergencies. Most lenders have their apps or websites where you can fill up a form and process your application with just a few taps on the screen. You’ll, then, receive a response about the status of your request within minutes.
Afterward, you can expect the money to be deposited into your account or claim it personally with the lender. This setup is ideal for emergencies since you might not be able to pay using your credit or debit card.
As mentioned above, you can easily apply for cash loans online through the lender’s official app or website. This makes the process more straightforward and convenient for borrowers. You don’t need to fill up several forms by hand and wait for several days up to weeks to hear back from the bank.
Cash loans operate differently from traditional loans, wherein you have to meet with an officer and discuss the options that you have. This includes the amount that you can borrow according to your perceived capability to pay, which is based on a calculation for your income and other assets.
- Flexible Use
With traditional loans, like mortgages and auto loans, you’re legally bound to use the money only for the products that you’ve applied for. Moreover, you may even be required to choose among the merchandise of the bank or financial institution’s partner companies, which narrows the area of where and how you can spend the loan.
In contrast, you can utilize cash loan funds on anything you want. The lender doesn’t have a say on where you can allocate your resources. Of course, you should, still, be prudent in spending the money since it’s a debt that you have to repay.
Most people who take out cash loans use them for:
- Recurring Expenses – The flexibility of cash loans allow you to stretch your budget to accommodate your monthly bills until the next payday. For instance, you may be a freelancer, and your clients haven’t paid you for your services yet. You can apply for a loan and repay it when you receive your paycheck.
- Special Events – There are also times when you need funds for a special occasion, like your wedding or child’s birthday party. You can take out a cash loan to help cover the expenses. Just make sure you exhaust all means of economizing on the things that you can cut back on before you apply for a loan so that you don’t need to borrow a hefty amount.
- Unexpected Emergencies – There are unforeseen situations that are out of your control, which entail substantial expenses that exceed your budget. This can include emergency home or car repairs, and even a health crisis experienced by you or anyone from your family. A cash loan can help tide you over and see you through the predicament safely.
Relatively, cash loans allow you to gain access to money instantly. The speed of application and response is beneficial when you’re facing emergencies and need cash right away. Watch this video to learn about how straightforward the application process is.
Conventional loans require you to fill out lengthy forms that you have to personally submit to a loan officer. There’s also a guarantee that your application will be approved because it goes through a stringent screening process based on your income and credit rating.
Generally, applications are filled out and sorted out online, which hastens the process. Nonetheless, you should look out for security red flags to prevent identity theft, especially when giving out personal information, like your Social Security number and bank details.
Cash loans are designed to help people with low credit scores. With this, it’s highly likely that your request to borrow money would be approved. Moreover, you can receive feedback on your application status within minutes or a few hours at most.
- Limit Increase
At first, lenders assess a new borrower’s capability to pay and set a limit on how much they can loan based on your salary range. However, if you prove to be a responsible debtor and make repayments on time, the creditor may increase the amount they can lend on your subsequent applications.
For example, you may have started with a 500 USD limit and paid the debt back timely. There’s a high chance that the lender can move up the threshold to 1000 USD. Eventually, you may even qualify for a larger amount with excellent interest rates and terms. With this, you’ll always have easy access to funds when you need them during urgent situations.
Meanwhile, there are also disadvantages to applying for cash loans, especially if you don’t go about the process responsibly. Here are the things that you should be mindful of when considering this type of lending arrangement:
- High Rates
Most cash loans entail high-interest rates because of its short repayment period (more on this factor later). Lenders earn a profit through finance charges, which refer to the fees that they charge on top of the principal amount.
The primary thing you should know about is the annual percentage rate (APR). To calculate this variable, you must identify the amount you’ll borrow, along with how much the lender charges for the credit and the term of the loan.
Say, you’ll be borrowing 350 USD with a finance charge or interest of 50 USD and a loan term of 14 days. First, you have to divide the fee with the principal amount (50 ÷ 350). With this, you’ll end up with 0.142857, which you must multiply with 365 or the number of days in a year. Divide the answer with the term of the loan, which is 14 days, and multiply with 100 to get the actual APR of 372.45 percent.
Depending on where you live, APRs can go as high as 700 percent. Nonetheless, the average figure of most lenders is approximately 400 percent, which may be due to the competitive industry.
You ought to know the interest rate and the APR so that you can get an accurate idea of how much you will end up paying. The latter provides a more comprehensive insight into the amount charged on top of the principal.
There are two major types of APR:
- Fixed – This means that the rate won’t change for the duration of the loan period. The predictability of fixed APRs is ideal for including the repayment in your monthly budget.
- Variable – In contrast, variable APRs rise and fall based on an index interest rate. One thing to be wary about this type of APR is that it may offer lower prices at the beginning of the loan period, but end up costing you more later on.
- Possible Additional Charges
Aside from the interest rates and APR, some cash loan companies have damaged the reputation of the industry due to additional and, sometimes, hidden charges. A few lenders have also gained notoriety for making withdrawals from borrowers’ bank accounts without checking first if the amount is enough.
They may even make multiple withdrawals in small amounts if the money in your balance isn’t enough. This can lead to your account getting charged with several overdraft fees, which can exacerbate your financial problems.
If you anticipate that you’ll be late in paying back the loan, you can request a renewal or rollover. This means that the lender can extend the repayment period.
However, they typically charge a minimal fee on top of the principal, interest rate, APR, and the new total. Additional late fees may also be applied if you still can’t finish off the repayment even after the extension.
Some standard hidden fees associated with cash loans involve:
- Loan Application – Some lenders disclose their interest rates willingly. However, you should also ask whether or not they’ll charge you for processing your loan application. This may seem insignificant by itself, but it matters when you add it to the total amount you have to pay back, which includes the principal and APR. You may also be charged for it even if your request got rejected.
- Returned Checks – This is similar to an overdraft fee except it’s for issued checks that were cashed in, but the account doesn’t have enough funds to cover the cost. You can accrue additional charges, which usually start at a minimal fee of 20 USD or a percentage of the amount in the check.
- Customer Service – You have to read through your loan contract thoroughly to check for additional fees, such as payment for customer service. Just like with the loan application fee, you may consider this as minimal, but it raises the amount that you have to pay back in the end.
- Shorter Repayment Period
Cash loans are designed with a short-term repayment period. It’s similar to a payday loan, which has the premise of allowing borrowers to stretch their budget and tide them over until their next paycheck arrives.
For this type of loan, you are expected to repay your debt in lump payments about a month or two after receiving the funds. This is unlike traditional personal loans where you can opt for a more extended repayment period, from two months up to two years. Still, you must remember that interest generally goes up for extended loan durations, which doesn’t have a significant difference with cash loans when you consider the shortened term.
- Risk Of Debt Trap
Cash loans have gotten a bad rap because a lot of people have fallen into debt due to renewals and late fees. For instance, you borrow 350 USD with an interest rate of 50 USD and a term of 14 days. After two weeks, you have to repay the lender with 400 USD.
However, if you are unable to pay off the loan, you will be charged with another 50 USD to renew or rollover the due date. This raises the amount you have to pay back to 450 USD since the second finance charge isn’t deducted from your previous total. If, by then, you still can’t finish paying off the loan, you can request for an extension again, but you’ll end up with a debt of 500 USD. The cycle can go on forever unless you manage your finances and prioritize completing the repayment.
Nonetheless, borrowers are also responsible for choosing this financing option. That’s why research is crucial so that you’ll know the risks to expect if you decide to pursue this lending arrangement.
Cash loans are a viable option if you need access to cash urgently. The application process is convenient, speedy, and can be completed online. Plus, lenders aren’t as strict on requirements, unlike traditional loans.
Another advantage of this type of lending setup is that you have full control over where you want to spend the money you borrowed. You can use it for recurring expenses, special events, or personal emergencies.
However, be aware of the fact that there are also risks involved when taking out a cash loan. It has higher rates than traditional loans, and some companies even charge hidden fees to boost their profits. There’s also a shorter repayment period, which can increase the chances of the borrower falling into a debt trap. Always do your research and remember to only borrow the amount that you can pay back before the due date.