It has happened to all of us at some point: You suddenly realize you’re low on cash and need to come up with money fast. In times like these, you would be tempted to take out a cash advance loan – but beware! These convenient loans often come attached with a range of risks and dangers, from sky-high interest rates to the risk of getting into debt that you may not be able to pay back. Read on as we explore the potential dangers associated with taking out an online cash advance loan, and provide expert advice to avoid these hazards.
What are cash advance loans?
Cash advance loans are short-term, high-interest loans that typically cover unexpected expenses or emergencies. These loans are typically offered by online lenders and can be very expensive. For example, a typical cash advance loan might have an APR of 400%. It means that for every $100 you borrow, you pay back $400 throughout the loan. These loans are also typically due very quickly – often within two weeks or by your next paycheck. It can make it very difficult to repay on time.
The dangers of cash advance loans
Cash advance loans can be dangerous if you’re not careful, and the major red flags can be high-interest rates and short repayment periods, making them difficult to repay. Also, if you’re unable to repay the loan on time, you could be charged additional fees, or your interest rate could increase, making it even harder to get out of debt.
Many lenders require that you repay your loan in full on your next payday. It means if you borrow $100 today, you would need $130 in two weeks to pay off your loan. If you can’t do this, you may need to take out another loan only to cover the first one, and the cycle continues. It’s a sure-shot way to get into debt.
How to avoid the dangers of cash advance loans
There are a few things you can do to avoid the risk that comes with cash advance loans:
1) Only borrow what you need: Don’t borrow more than you need. It will help ensure you don’t end up over your head and will not be tempted to spend extra money on unnecessary spending.
2) Find a lower interest rate: Shop around for a loan with a lower interest rate. It’s not hard to find one if you put in enough effort. Just research, and don’t settle for the first option you get.
3) Create a budget: Make sure you create a budget, and stick to it, so you don’t find yourself in a financial bind.
4) Have an emergency fund: Try to have an emergency fund saved up so that you don’t need to rely on these types of loans in the future.
5) Seek professional help: If you’re struggling to get out of debt, seek professional help from a credit counselor or financial advisor who can help you create a plan to escape this debt.
Alternatives to taking out a cash advance loan
If you’re in need of immediate funds, taking out a cash advance loan isn’t your only option. Other alternatives are also available that can help you avoid the high-interest rates and fees associated with these types of loans.
One option is to reach out to friends or family members for assistance. While it may be uncomfortable to ask for help, loved ones may be willing to lend a hand during a time of need. Another option is to sell unwanted items you no longer need or use. Consider renting it out if you have extra space, like a room or a basement, in your house. It can help you cover the expenses and earn an income in the long run.
Part-time employment is another alternative worth considering. By taking on odd jobs or freelance work, you can earn some extra income to help you cover your expenses. It would be especially helpful if you find work that aligns with your skills and interests. If you have a retirement account, you may be able to borrow from it. However, it’s important to be cautious when considering this option, as early withdrawals come with penalties and taxes.
Cash advance loans can be dangerous if you’re not careful. They often have high-interest rates and short repayment periods, which makes them difficult to repay. There are some actions that you can take to avoid the dangers of cash advance loans: only borrow what you need; find a lower interest rate; create a budget; have an emergency fund; and seek professional help from a credit counselor or financial advisor. By following these tips, you can avoid the dangers of cash advance loans and stay out of debt.