While a cash advance can be quite expensive and do more financial harm than good, there are a few times when it might be a sensible option:
- If you’re rebuilding credit: If your credit history is a bit bumpy, you might not have access to https://installmentloansgroup.com/installment-loans-ky/ other types of financing, such as a personal loan. That’s because personal loans usually require good credit.
- You have a high debt-to-income ratio: If you have a high DTI ratio, you might not be able to get approved for a personal loan, or at least one with favorable rates and terms.
- If you don’t have time to shop around: As other financing options require you to do some research to compare rates, terms and loan amounts, if you need that money as soon as possible, it might make sense to opt for a cash advance. You won’t need to apply for a new credit card or loan, and you can get the money through an ATM.
- If you can pay it right away: If you have a very temporary shortfall of cash or are experiencing a cash-flow gap, a cash advance means you can count on receiving money in the very near future.
Alternatives to cash advances
- Personal loan: If you have good credit and a stable income, you could qualify for a personal loan . Some personal loans allow you to borrow a minimum of $1,000 and grant you access to the funds quickly after your application is approved. However, when applying the lender will do a hard pull of your credit. And as personal loans are unsecured (you don’t need to offer collateral to back it up), you may need a good credit score to get approved.
- Early direct deposit: Some financial service platforms offer the feature to have a portion of your paycheck deposited a few days early without any fees or interest. You typically have to set up a direct deposit with a minimum monthly amount to qualify. The sum is usually fairly small, and depending on the platform and your eligibility, is typically capped at $150 or $200. Once payday rolls around, the advance you received is taken out of your paycheck.
- Fee-free cash advance: Similar to early direct deposit, a handful of money apps and online financial platforms offer the option to receive a small cash advance. The advance is typically capped at a lower amount, but it’s fee-free and no interest is charged.
- Asking friends and family: If you have a good friend or trusted family member who can afford to let you borrow some money, it might be worth asking them if they are open to offering you a small loan. Just tread carefully. Be sure to spell out the loan terms and expectations of repayment before you accept the money, as otherwise you could risk damaging a relationship.
What’s the difference between a cash advance and a payday loan?
Both a cash advance and payday loan are short-term, quick solutions to gaps in cash flow. The dollar amounts tend to be on the small side. Both are known to have high interest rates and fees.
The biggest difference between a cash advance and a payday loan is that you’ll need to go through an online payday lender or set foot inside a payday lender location to get a payday loan. While the interest rate of a cash advance is higher than your standard credit card APR, the interest rate on a payday loan is staggeringly high — we’re talking triple digits. It can be 400% or higher. You’re also required to pay back that money quickly, usually within two weeks.