Getting an online cash advance with bad credit

Facing a financial crunch is tough enough, but it can feel even more challenging with less-than-perfect credit history. When in this situation, it’s common to wonder if cash advance loans are a viable option for you. Today, we give straight talk on cash advances, with a special focus on how they work for people with bad credit. We'll cover the essentials, explore potential pitfalls, and show you how Varo Advance¹ offers a different, potentially more helpful approach.

Understanding Online Cash Advances for Bad Credit

What is a cash advance, really?

A cash advance is a short-term loan that provides quick access to cash. It's meant to bridge a financial gap until your next paycheck or income source arrives. They should generally be thought of as a temporary solution, not a long-term fix for ongoing financial difficulties.

People often turn to cash advance loans in situations where immediate financial assistance is critical, such as:

• Emergency Car Repairs: Getting a vehicle fixed for work or essential travel.

• Urgent Medical Expenses: Covering unexpected and pressing healthcare costs.

• Avoiding Eviction or Utility Shutoff: Preventing the loss of housing or essential services.

• Time-Sensitive Situations: Addressing immediate needs when other financial options are unavailable.

What qualifies as “bad credit”?

Your credit score is a numerical representation of your creditworthiness based on your borrowing and repayment history. Scores generally range from 300 to 850. A credit score below 670 is often considered "fair" or "poor". Lenders typically view these individuals, with lower credit scores, as higher risk.

The effect bad credit has on your ability to borrow

Traditional lenders, such as banks and credit unions, often rely heavily on credit scores when making lending decisions. If your score is low, you may be denied traditional loans, which can leave you feeling like you have limited options when you need cash quickly.

Types of available cash advances for bad credit

There are several types of cash advances to be aware of:

• Payday Loans: These are extremely short-term, often due on your next payday, and can be accompanied by very high interest rates or fees, which pose a significant risk of trapping borrowers in a debt cycle. These should be approached with caution.

• Installment Loans: These loans are repaid in scheduled installments over a few months. While they may be easier to qualify for than traditional loans, some may still come with high costs.

• Online Cash Advances: Offered by online lenders and cash advance apps, the terms and costs associated with these loans can vary widely, requiring careful comparison between lenders. Varo Advance is a type of online cash advance with some key differences that we'll discuss later.

Read more: How cash advance apps work

Challenges and Risks for Bad Credit Borrowers

The high cost of borrowing

The cost of borrowing is a primary concern. Interest rates are a key factor, with the Annual Percentage Rate (APR) representing the total yearly cost of borrowing, expressed as a percentage. Bad credit cash advances may come with particularly high APRs. 

It's also important to understand how interest is calculated—whether as simple interest (on the original loan amount) or compound interest (on the principal plus accrued interest). Various fees can also add to the cost, including origination fees (charged for processing the loan), late payment fees (for missing deadlines), and non-sufficient funds (NSF) fees (charged by your bank if your account bounces the payment). 

Transparency from the lender is essential; reputable lenders will be upfront and clear about their interest rates, fees, and repayment terms. Be wary of lenders who are vague about costs or pressure you to borrow without fully disclosing the terms.

The debt trap, a vicious cycle

A major danger with cash advances for bad credit is the potential to get trapped in a cycle of debt. This occurs when you're unable to repay the advance by the due date and are compelled to "roll it over" or "renew" it, which typically involves additional fees and interest charges. The high cost of borrowing can make it very difficult to escape this cycle, potentially leading to long-term financial difficulties. Effective strategies for avoiding this debt trap include creating a budget to track income and expenses, prioritizing debt repayment, and seeking guidance from a certified non-profit financial counselor if necessary.

Credit score consequences

Credit score implications vary depending on the lender and the type of loan. When you apply for traditional loans, lenders may perform a "hard inquiry" on your credit report, which can temporarily lower your credit score. Delinquent payments on traditional loans will be reported to credit bureaus and can substantially and negatively affect your credit score. In contrast, some cash advance lenders may not conduct credit checks, while others may perform a "soft inquiry" that does not impact your score. Crucially, some cash advance lenders DO report payment activity (both positive and negative) to credit bureaus, while others do not. 

Varo Advance¹ is designed not to report payment activity to credit bureaus, meaning responsible use will not improve your score, but missed payments will also not directly harm it. These cash advances can be particularly appealing to borrowers with bad credit.

Predatory lending

It's crucial to be wary of predatory lending practices. This includes lenders that:

• Are not transparent about their terms and conditions.

• Pressure you to borrow more than you need.

• Impose very short repayment periods that are difficult to meet.

Varo Advance: A Different Path

Varo Advance¹ takes a different approach, offering a broader range of people access to short-term financing—including those who may not qualify for traditional loans. We believe that the development of financial products should prioritize consumer well-being, incorporating ethical considerations such as fair lending practices and data privacy. Varo Advance focuses on exactly that, providing our customers with transparent access to fast online cash advances for a single flat fee.

Varo Advance includes several key features:

• No Credit Checks: Varo Advance does not rely on traditional credit scores for eligibility. Instead, it considers factors such as your account activity and direct deposit history with Varo.

• Transparent Fees: Varo Advance features a clear and simple fee structure, ensuring you know the exact fee amount before borrowing.

• Instant Funding: Upon approval, funds are deposited into your Varo Bank Account the same day, often within minutes. You can then spend this cash using our debit card, credit-builder card, or by taking out cash.

• Flexible Advance Amounts: Varo Advance provides a range of advance amounts, allowing you to borrow only the amount necessary to address your immediate needs.

• No Negative Impact on Credit Score: Because Varo Advance doesn't report payment activity to credit bureaus, using the service won't affect your credit score.

Varo Advance promotes responsible borrowing and repayment practices. Tools are available within the app to assist users in managing their finances effectively, including free cash flow tracking and automatic cash advance repayments².

How to Get a Cash Advance with Varo

To use Varo Advance, you will need a Varo Bank Account (yes, even those with bad credit can open an account). To be approved for a same day cash advance, specific requirements apply regarding account activity and the amount/frequency of your direct deposits. The purpose of these requirements is to ensure your ability to repay the advance.

You can conveniently request an advance directly through the Varo mobile app, once eligible. The application process is streamlined, requiring basic information about your income and repayment source. Varo typically provides prompt notification of your approval status, after which you will be able to request an instant cash advance.

Varo provides a clear repayment schedule, providing up to 30 days to pay back your cash advance (this is better than many payday advances). Automatic repayment options are also available for added convenience². Late or missed payments may affect future cash advance loan eligibility but will not be reported to credit bureaus.

For responsible use of Varo Advance, consider the following:

• Borrow only the amount you require. Avoid borrowing more than is necessary to cover your immediate expense.

• Prioritize on-time repayment. Ensure sufficient funds are available in your account to cover the repayment on the specified due date.

• Use cash advances as a short-term solution. Do not rely on them for ongoing or recurring financial needs.

• Track your spending and create a budget. Developing sound financial habits is crucial for long-term financial stability.

Budgeting and financial planning are fundamental to effective money management. Creating a detailed budget enables you to monitor income and expenses, identify areas for potential savings, and allocate funds for future needs, including building an emergency fund. Establishing even a small emergency fund can help mitigate the need for borrowing in the event of unexpected costs. The Varo app also includes free cash flow tracking, allowing you to better understand where your money is going each month.

In Closing

Instant cash advances can provide a short-term solution for immediate cash needs, but it is imperative to fully understand the associated costs and potential risks. Cash advances like Varo Advance¹ offer a transparent, accessible, user-friendly, and same day cash advance option for individuals with bad credit, quals apply. However, remember—sound financial planning and responsible borrowing habits are the cornerstones of long-term financial stability.

Disclosures

1 Varo Advance (VA) is a small dollar line of credit. Initial limits range from $20-$250, work your way up to $500 over time. Fees range from $1.60 - $40 based on loan amount. Current limit can be viewed in the Varo App. Only one outstanding advance at a time, must be repaid in full prior to requesting a new advance. Varo Bank Account, with minimum Qualifying Direct Deposit (QDD) of $800 in current or previous calendar month required. Limits and eligibility evaluated daily and may change at any time. Add'l qualifications apply.Your current limit is always available to you in the home screen of your Varo app.

2 Set up an automatic payment to your Varo Advance Account on any date you choose between 15 and 30 days from the day you get your Advance.