Need Cash Fast? Understand Cash Loans and Ways to Earn Money

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Updated on Friday, May 25, 2018

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If you’re looking to get a fast-cash loan, slow down. Stop. Breathe. Instant-cash loans can mess up your household finances big time if you aren’t careful.

With quick-cash loans, ”a consumer is typically trying to solve a very short-term problem,” said John Thompson, chief program officer at the Center for Financial Services Innovation (CFSI), a national nonprofit focused on improving the financial health of low- and moderate-income consumers. “But they may not have done the necessary research, because they’re so focused on fast.”

Because of the predatory nature of some of the loan products targeting folks who need money quickly, we’ve done all the homework for you. The key takeaway is this: There are good and bad cash loans, and you, of course, should aim to get a good one.

Our fast-cash crash course should only take you 10 minutes, but it can help you avoid a mistake that can create months or years of financial headaches.

What are fast cash loans?

Some cash loans are better than others.

Less desirable fast-cash loans. If you have bad credit, less desirable quick-cash loans usually don’t require a credit check. But you typically pay for that understanding in the form of triple-digit interest rates or fees, which make them less affordable for consumers already in financial straits. That, in turn, can prompt borrowers to extend or renew the loan, which can trap them in a vicious cycle of debt.

Consumer advocates thus say that fast-loan borrowers are vulnerable and “left to the mercy of whatever loan terms a lender wants to throw your way,” said Scott Astrada, federal advocacy director at the Center for Responsible Lending, a nonprofit, nonpartisan organization that works to protect homeownership and family wealth by fighting predatory lending practices.

Adding to that concern, storefront fast-cash lenders tend to be located in low- and middle-income minority neighborhoods and around U.S. army bases that are home to low-paid military men and women. In recent years, these lenders have also moved to the Internet and on smartphone apps, where they can pitch their loans to young, digitally oriented millennials, minorities and students who are also often of low- and middle-income, said Thompson.

Small-dollar lenders dispute the negative characterization and say they’re simply filling a need. “So-called consumer advocates in Washington are disconnected from the financial realities of millions of Americans across the country who responsibly use small-dollar loans,” said Dennis Shaul, CEO of the Community Financial Services Association of America (CFSA) in an email response to questions from MagnifyMoney. “The fact is, many of these advocates have never needed a small-dollar loan, so they’re critical of a product with which they have no experience.”

CFSA represents lenders who make up more than half the small-dollar storefronts in the U.S., and Shaul said member companies follow the trade group’s mandatory best practices that “help consumers make informed financial decisions … ensure responsible conduct among lenders, and protect borrowers’ rights.” Member companies must display the CFSA seal and maintain a toll-free phone number where customers can complain. CFSA said it doesn’t get many complaints, but when it does, it will “investigate … and take appropriate action.” Consumers can also complain to the Consumer Financial Protection Bureau.

More desirable cash loans. You can also get cash fast from loans with more comfortable repayment terms and much better double- and even single-digit APRs, which are much more affordable. But these are usually contingent upon having a more stable income and more responsibly managing your household finances, said Thompson.

Sound finances help you build savings and good credit, which opens the door to getting this more desirable credit: a personal loan, borrowing from your 401(k) retirement plan or simply getting a cash advance from (or charging an expense directly to) your credit card, said Thompson.

“Planning ahead is really key,” said Thompson. He added that research by CFSI showed that consumers’ household income and expenses have gotten surprisingly volatile in recent years. Each year, the average family experiences two and a half expense spikes and two and a half income dips. “That’s a lot, the spikes are sometimes difficult to predict, and if you haven’t prepared for those in the form of savings or if you don’t have access to a credit card solution, it can be very difficult for a family to respond,” Thompson said.

Different kinds of cash loans

Sometimes when you need cash quickly and you don’t have any other means of getting it, you don’t have the best options to choose from. In fact, it can often feel like you’re choosing the best worst option available. That’s why it’s even more important to know how each of these loan options works so you can make an educated decision.

Payday loans

How they work: Payday loans use your next paycheck as security to repay the amount you borrow, usually within two weeks or fewer than 45 days. The lender holds a superior lien on your checking account and electronically takes the money needed to pay off the loan in full on payday.

Rates and terms: Rates and terms vary, but APRs on these loans can be upward of 300% to 400%. (The interest rates may seem lower, because finance charges are often expressed as a fee of, say, $15 per $100 borrowed. That can look like a 15% interest rate, but interest rates are properly and legally compared on an annual basis, and a payday loan is typically only two weeks. The APR annual percentage rate on this loan works out to 390% over a year, mathematically 15% x 26 two-week periods in a year. Too, 86% of borrowers don’t actually pay off their loan in only two weeks, rolling it over an average of 5 times, according to a 2012 CFSI study.)

You can typically borrow up to $500, but the average payday loan is $370, according to the Community Financial Services Association of America trade group.

Pros:

  • Fast, convenient; no credit check; high approval rate.

Cons:

  • Sky-high APRs
  • You must have a bank account to get a payday loan, which means the nation’s 9 million so-called “unbanked” households (which have neither a checking nor savings account, according to the Federal Deposit Insurance Corp.) don’t qualify for a payday loan
  • Your good repayment history is not reported to credit bureaus, so you don’t build credit
  • If you can’t repay, you’ll likely roll the old loan into a new one, which can trap you in a cycle of unaffordable debt
  • If your checking account has insufficient funds when the payday loan payment comes due, automatic electronic repayment could trigger costly overdraft penalties.

Auto title loans

How they work: Auto title loans use your car as collateral to repay the amount you borrow within a couple of months to more than a year. You give the lender a lien on your vehicle, which can be taken and sold to pay off the loan if you don’t repay.

Rates and terms: Rates and terms vary, but depending on the value of the vehicle, you can typically borrow a couple thousand to $10,000 at APRs of 300% to 400%, Astrada and Thompson said.

Pros:

  • You can usually get your money in 24 to 48 hours; no credit check; high approval rate, said Astrada and Thompson.

Cons:

  • Sky-high APRs
  • Your good repayment history is not reported to credit bureaus, so you don’t build credit
  • If you can’t repay, you can lose your car, which can cause other havoc, if you need the car to get to work

Pawn shop loans

How they work: Pawn loans use some personal property with value — jewelry, electronics, musical instruments — which the pawn shop holds, as security to ensure you’ll repay the amount you borrow, typically for a couple of weeks to a couple of months. You get your property back when you repay, and if you don’t repay, the pawn shop sells your property to satisfy the loan.

Rates and terms: Rates and terms vary, but the average pawn loan is $150, according to the National Pawnbrokers Association (NPA). Annual interest rates charged were not immediately available from the NPA, but Nolo said they range from 12% to 240%, depending on state law.

Pros:

  • Fast, little paperwork
  • Since the loan is based on the value of the item pawned, there is no credit check
  • If the item you pawn has value and you’ve had no past negative repayment performance with the pawnbroker, you’ll almost certainly get this kind of loan, Thompson said.
  • Sometimes reasonable interest rates.
  • Because these are “non-recourse” loans, pawnbrokers cannot demand repayment of the amount borrowed, according to the NPA.

Cons:

  • Sometimes they carry high interest charges
  • Your good repayment history is not reported to credit bureaus, so you don’t build credit
  • If you can’t repay, you may lose the item pawned, which is worth much more than the amount owed and may also have high sentimental value.

Bank account overdrafts

Ironically, consumers who don’t have access to loan options often turn to an even worse super-expensive option that you may not even think of as a form of credit: They overdraw their checking account to cover the shortfall.

In most cases when there were insufficient funds for a debit, banks paid the transaction, and consumers brought their negative account balance back into the black within three days, but the banks charged a median $34 overdraft penalty fee for what is effectively a short-time, fast-cash loan, according to a 2014 study by the CFPB.

The CFPB research also found that the average debit card transaction that triggered overdrafts was $24. “Put in lending terms, if a consumer borrowed $24 for three days and paid the median overdraft fee of $34, such a loan would carry a 17,000% APR,” the CFPB concluded.

With that perspective in mind, if you don’t qualify for the relatively low-cost, fast-cash loans, then the more expensive payday, auto title and high-rate pawn loans can become preferable to the effective five-digit interest rates of an overdraft “loan.”

Personal loans

How they work: Personal loans are fixed-rate loans that you pay back over a specific amount of time, typically one to five years. Because they are fixed rate, you never have to wonder how much they’ll cost you over time. You can take out personal loans for a variety of uses, from tackling an emergency auto repair bill to consolidating debt.

Where to get them: Personal loans are offered by banks, credit unions, and non-banks, and are not secured by any property. Consequently, their interest rates tend to be higher than, say, an auto loan or a mortgage. But they are still dramatically more affordable than a payday or title loan could be .

If you’re looking for a personal loan, start with your local credit union.

In addition to standard personal loans with competitive rates, many credit unions offer “Payday Loan Alternatives,” which are one- to six-month loans of $200 to $1,000. PALs, as these consumer-friendly loans are called, cannot be rolled over and have an application fee that’s only sufficient to cover the actual costs associated with processing the borrowers application, up to $20, according to MyCreditUnion.gov, operated by the National Credit Union Administration, which regulates credit unions.

The important thing is to compare offers from more than one lender to get your best deal. Check out the MagnifyMoney’s personal loan marketplace to compare offers, or look at our roundup of some of the best personal loans for people with poor credit currently on the market.

How to qualify: Lenders look to your good creditworthiness to ensure that you’ll repay in installments over one to five years. The higher your credit score, the lower your interest rate. There are personal loan companies willing to work with borrowers with low credit scores, but you may have to pay an origination fee (typically 1% to 6%) and deal with higher APRs.

Pros:

  • Significantly lower interest rates than payday and auto title loans
  • Installments allow you to spread out repayment over time
  • Fixed term loan so you’ll know when it will be paid in full
  • No threat of having your car or other property seized if you don’t repay
  • Your good repayment record gets reported to the credit bureaus, which helps build your credit rating.

Cons:

  • Rates can be high for those with poor credit.
  • May come with origination fee.

Credit card cash advances

How they work: Many credit cards let you obtain a cash advance from an ATM or bank teller. The amount you can borrow is only a portion of your card’s overall credit line, and you are charged a fee equal to a percentage of the amount borrowed plus an interest rate that’s higher than the rate you pay for purchase charges.

Fees and terms vary, but the APR on a cash advance is typically 25% or higher.  You can find the details for your specific card in its terms and conditions disclosure and on your monthly statement.

Pros:

  • The super convenience of plastic: No applications to fill out and no credit check beyond that required to get your card originally
  • Significantly lower interest rates than payday and auto title loans
  • Your good repayment record gets reported to the credit bureaus, which helps build your credit rating.

Cons:

  • Fees and interest rates may be higher than those available on a personal loan
  • High convenience may tempt you to take this fast cash option without exploring other, less expensive options.

401(k) loans

How they work: 401(k) loans allow you to borrow some of the assets in your retirement plan which you must repay within five years, commonly through automatic monthly or twice-monthly deductions from your paycheck. If you lose or leave your job, however, your entire loan balance will become due generally within 60 to 90 days.

More than half of 401(k) plans offered loans and the average outstanding loan balance was nearly $8,000 in 2015, according to a database maintained by the Employee Benefit Research Institute, a nonprofit research organization, and the Investment Company Institute trade association of regulated mutual funds and similar fund companies.

Rates and terms: Your plan can set limits on the amount you can borrow: $10,000 or half of your vested account balance, whichever is bigger, up to $50,000. If you’re a victim of Hurricanes Harvey, Irma or Maria, or the 2017 California wildfires, you can borrow up to $100,000 and 100% of the vested account balance. Your 401(k) plan likely has a minimum loan amount. Each plan sets its own interest rate, but the rates at 93% of plans were equal to the prime interest rate or prime plus one or two percentage points, according to a Harvard/Yale study; at the current prime rate, that adds up to a very low 4.75% to 6.75%.

Pros:

  • Significantly lower interest rates than all the other options discussed here; installments let you spread out repayment over time
  • Less paperwork and no credit check to get the loan
  • 401(k) loans allow access to use your otherwise untouchable retirement assets without early withdrawal penalties, which may make workers more comfortable putting money into their illiquid plans.
  • Repayment is with after-tax dollars and do not count toward your annual contribution limits, so loans allow you to preserve the tax-deferred status of your plan balance as long as you repay the loan.

Cons:

  • You must have a 401(k) plan from which to borrow.
  • Because a 401(k) loan temporarily reduces your plan balance, the borrowed amount doesn’t earn investment returns to build your retirement nest egg, as long as it remains unpaid.
  • If you leave or lose your job, the remaining loan balance must be paid off, otherwise the loan becomes a taxable plan distribution, which reduces your retirement assets and could trigger early withdrawal penalties. Employer plan rules on this point vary widely. Former employees may be allowed to repay the loan directly to their plan — immediately or within 60 days after leaving their job — or not at all, according to the ICI and Stephanie Napier, senior counsel for The Vanguard Group, one of the world’s largest investment companies and a leading manager of retirement plans.However, whatever your plan rules allow, the new tax law gives you much more time to effectively pay off the loan by “rolling it over” into a new or existing Individual Retirement Account (IRA), 401(k) plan or other qualified retirement account, which is separate from your former employer’s plan: You pay what you owe on the loan into that separate account from whatever source — it doesn’t have to be wage earnings — and restore the tax-deferred status of those contributions. You have until the next year’s tax filing deadline (or until whatever filing extension the IRS grants to you) to make good on the full unpaid loan balance, Napier and the IRS told MagnifyMoney.

Does it ever make sense to get a fast-cash loan?

Good planning and responsible money management are the best way to weather the ups and downs of family finances, Thompson advised. But the reality is that many consumers don’t always have the knowledge, skills or inclination to do that, which can leave them in crisis mode when shortfalls appear. That, in turn, can lead to poor decision-making.

But even in a crisis, you have better and worse fast-cash loan options. Look first to the ones worth considering. Those are, from lowest to higher cost within that group, 401(k) loans, personal loans and credit-card cash advances.

CFSI’s Thompson would not offer advice for how to find a reputable small-dollar lender or avoid scams. Instead, he recommended “a thorough examination of not just price, but loan terms and how it affects your future finances,” he said. That will likely throw cold water on the idea of using such loans.

Thompson also suggested: “Assess your other options.”

For example, many utility companies and medical billers may make interest-free or low-cost payment arrangements over time if you can’t pay their bills all at once, said Astrada.

Alternatives when you need money fast

Finally, you don’t always have to borrow to meet your short-term cash needs. Instead, you can take on extra work, sell some of your unwanted possessions or rent out your car or home to raise fast cash. Thanks to innovative smartphone applications that link gig economy workers with paying customers in need of their services, it’s increasingly easy to put your skills to work and get paid quickly.

SideHusl.com (make sure you spell this correctly in your browser) is a great one-stop shopping directory for information, tips, ratings and the money making potential of 180 such platforms that offer opportunities for work (including Amazon Flex, Rover, Shiftgig, and Wingz), selling your stuff (including Nextdoor), and renting out your car or home (including Silvernest and Turo).

“There are tremendous opportunities in the gig economy. There are jobs that can give the little extra money you need, but there are also incredibly exploitive platforms that will pay practically nothing and in some cases steal the wages you actually earned,” said Kathy Kristof, editor and founder of SideHusl.com.

Kristof, a long-time consumer investigative reporter who has written extensively about the gig economy for the Los Angeles Times, CBS News and Reuters, created SideHusl.com because she could not find an online directory for all you can do and how much you can make with the numerous hiring, selling and renting apps.

“You can definitely earn $20 to $30 an hour with the better platforms. If you have a truck and a lot of muscle, some of the better opportunities are helping people move, which can pay $40 to $50 an hour,” Kristof said.

SideHusl.com also covers platforms that pay you for taking surveys, but “none rated particularly well,” said Kristof.

Bottom line

Although it is possible to deal with a cash crunch on the fly, as we’ve explained here, it’s better to be prepared for the inevitable unexpected expenses and dips in income, and that takes planning. CFSI has extensively studied household financial behavior and identified three broad types of consumers: those who are “vulnerable” (who tend to live paycheck to paycheck or are unaware of, or disengaged from, their financial situation), “coping” (who struggle to pay bills or have little savings and high debt) and “healthy.”

To deal with future cash crunches, do what the healthy money management households do:

  • Work diligently to build your job skills and income;
  • Use whatever personal budgeting system you’re comfortable with to plan ahead, especially for large irregular expenses not paid every month (such as insurance, property taxes, car registration) and predictable cost spikes (such as heating bills in the winter and cooling bills in the summer);
  • Develop a savings habit that looks five years into the future to build money for planned major purchases and emergencies by putting a set amount of every paycheck into savings every month — the same way the taxman rakes in his cut first. Among such saving tricks: Save the income of one family member and spend the other’s paycheck on regular expenses, or save (rather than spend) unusual income, such as bonuses, gift money, occasional investment income and tax refunds;
  • Maintain a high credit score by paying all bills on time and not overborrowing, so you can qualify for the lowest interest rates and your best loan terms;
  • Sign up for mobile banking, account alerts, and online bill-pay so you can use your smartphone to keep track of your bank and credit balances 24/7, and move money from one account to another as necessary.

Eliminate or reduce budget-busting overdraft penalty fees by not opting into checking account overdraft protection for ATM withdrawals and debit card point-of-sale transactions, the CFPB advised. If you have insufficient funds to cover a given debit card transaction, the debit will simply be denied, which may cause a minor embarrassment but will prevent the bank from assessing a huge penalty.

You should also sign up in advance for work/sell/rent marketplace platforms. Some major platforms can take a couple of weeks to vet and approve you. With that advance planning, you’ll be ready to rumble if you need fast earnings or want to regularly use gig work to build income and savings, said Kristof.

Finally, consider signing up for Dave.com, which is a clever budgeting tool that sends alerts to your smartphone about upcoming bills and expenditures, so you can be sure you’ll have enough money in your account to cover them. The app, which is linked to your checking account, also predicts whether you might be headed for an overdraft, and if it thinks you are, Dave deposits an interest-free $75 loan into your account to prevent any crushing bank penalty. The service costs $1 per month, plus whatever “tip” you want to volunteer to thank Dave for saving your neck, said Jason Wilk, CEO and co-founder of Dave.com.

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