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A cash advance loan can be a convenient way to get the money you need quickly. However, since this is essentially a short-term loan, does that mean you’ll have to put down something called collateral (like you do with other types of loans)? In this article, we’ll explain the purpose of collateral and if cash advances really require it.
Collateral is something of value that the borrower pledges to the lender to secure the loan. It can be anything that has resale value, such as a home, a vehicle, or a boat.
The idea behind collateral is that if the borrower was to default on the loan, then the lender has the legal right to seize this asset, resell it, and then recoup their losses. A typical example of a loan where collateral is used is a mortgage. When you buy a home, you agree that if you can’t make your payments, the property can be repossessed by the lender.
Since most cash advance loans only last approximately two to four weeks and are generally for relatively small amounts, the lender isn’t taking on the same level of risk as compared to one providing a conventional loan for a home or vehicle. Therefore, it’s usually not necessary for the loan to be secured by collateral.
During the application process, the borrower will be expected to show information like proof of employment as well as other documentation for the lender to evaluate.
On top of not requiring collateral, there are several other reasons why cash advance loans can benefit some people.
Again, the main draw to a cash advance is that the borrower can quickly get the cash they need. Many cash advance lenders offer same-day or next-day payouts. This can be a huge incentive when you’re late on rent or a bill, and you don’t have time to wait for a traditional loan to process.
Flexible credit score requirements
Traditional banks and lenders generally require applicants to have a decent credit history. Though numbers vary, they’re usually looking for someone with a FICO Score of 670 or better. Even if they accept a borrower with a lower credit score, it will come at the cost of being given a loan with a higher interest rate.
Meanwhile, cash advance loans may be more lenient accepting applicants with less than perfect credit.
Short repayment terms
Some loans can take years or possibly even decades to pay back. However, many cash advance loans only last until your next payday (two to four weeks for most people). This means the loan will be very short-term and paid off relatively soon, so it won’t contribute to your long-term debt.
Whereas some conventional loans require the use of collateral to secure a loan, cash advance loans do not. They rely on other factors like your proof of income and credit history. If you’re in need of fast cash that comes with short repayment terms and flexible credit score qualifications, then consider how a cash advance might be helpful to you.
Disclaimer: MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence.
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