What Is A Cash Advance? And Why These 9 Alternatives Are Better

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A financial emergency could spring up at any time. Maybe your car needs repair work, or your water heater is kaput. We all know that we need an emergency fund to pay for these kinds of expenses, but if you’re living paycheck to paycheck, it can be hard to save up a reserve of cash.

If you find yourself in this situation, you can end up making a bad choice to cover your emergency – and the wrong decision can make what is already a bad financial situation even worse.

This is especially true if your solution is to take out a cash advance against a credit card or your paycheck. If you pay back the cash advance quickly, there may be no real harm, but that’s often not what happens.

Cash advances can start you down the path to growing debt and a ruined credit score. But fear not, as there are actually a number of other options out there for you when you are in a financial pinch and don’t have enough in your emergency fund.

We’ll outline what a cash advance is and 9 alternatives that are better.

What is a Cash Advance?

There are two common types of cash advances, a credit card cash advance and a cash advance from a payday lender.

A credit card cash advance allows you to withdraw cash from a bank or ATM against your credit card. A payday loan is a short-term loan from a storefront payday lending business or an online payday lender.

Why Do People Get Cash Advances?

Most places of business take credit and debit cards, but there are still some situations where cash is the only form of payment accepted – like rent payments, for instance.

People often turn to cash advances from a payday lender (which aren’t necessarily paid out as cash) because they’ve run into a budget shortfall. They’re a few days or more from receiving their next paycheck but don’t have enough money to cover a critical expense like the rent, a utility, or groceries.

And then there are expenses a lot of us would never think of that require a cash advance, like needing bail money!

How Does a Cash Advance Work?

Getting a cash advance is easy, but using your credit card and using a payday lender are different processes.

A cash advance using your credit card is a simple high interest, short-term cash loan. If your credit card has a PIN, you can withdraw the money from an ATM. If your credit card doesn’t have a PIN, you’ll need to take the card to a bank that will give you a cash advance through the card’s payment network (Visa, Mastercard, etc.).

You can’t pull the full amount of your credit limit or remaining credit limit off your card with a cash advance, as your card provider will likely have a maximum limit.

The second method is getting a cash advance from a payday lender. Payday loans are also short-term loans that are usually for a few hundred dollars. Most of these loans don’t require a credit check or any credit history at all, but come with massive interest rates if you don’t pay them back as soon as your paycheck arrives.

Borrowers just need a bank account that is in good standing and a steady source of income (a job, alimony, disability, Social Security, etc.) to be eligible.

The borrower typically writes out a personal check for the amount of the loan and any additional fees. The check is held by the lender and cashed once the loan is due. In the case of an online loan, the borrower provides the lender their bank details, and the money is taken out of their account when the loan comes due.

Some payday lenders offer installment loans that are longer-term than the typical payday loans. The borrower authorizes the lender to withdraw money from their bank account over a period of weeks or months, usually on each payday.

How Much Does a Cash Advance Cost?

Up to this point, you might think a cash advance is a pretty good solution to the problem of being short on cash. And if your need is very temporary, it can be. But the problem comes when people continue to have financial issues and can’t pay back the cash advances quickly.

When you take out a cash advance against your credit card, there is a fee. Some cards charge a flat fee for each advance, usually between $5 and $10, and some charge a percentage of the amount the borrower is advanced, sometimes up to 5%. And sometimes the borrower is charged a percentage with a minimum dollar amount, like 3% or $10 whichever is higher.

On top of fees, the credit card is going to charge interest on a cash advance just as it does when you charge a purchase. There is no deadline to pay the cash advance. You just need to pay at least the minimum balance due on the card each month.

Payday loan amounts, on the other hand, range from $100 to $1,000 depending on the maximum limit in the state the lender is operating in. There is a fee that ranges from $15 to $30 per $100 borrowed. The average length of the loans is two weeks. If at the end of the loan, the borrower can’t repay it, they can just pay the finance charge and roll the loan over to their next pay period.

The Problems with a Cash Advance

If the loan is paid back quickly, the borrower will have paid a lot of money in fees and some interest, but not much harm has been done. But when the loan isn’t paid back quickly, the problems with a cash advance become amplified.

We all know that credit cards have a high-interest rate. That’s why it’s essential to always pay off your cards in full each month. There is a grace period, usually between 21 and 25 days. If you pay the card off in that period, you won’t be charged interest on your purchases.

Things don’t work this way when you take out a cash advance on a credit card. First of all, the interest rate for a cash advance can be higher than it is for a standard purchase. And secondly, there is no grace period. The moment you pull cash off the card, the interest starts accruing.

Meanwhile, the interest rates on payday cash advances will make credit card interest rates look like a bargain. Loans from payday lenders can come with interest rates reaching as high as 400% APR.

And most borrowers aren’t paying back the loans on the first due date. Instead, 80% of borrowers rolled over or reborrowed loans within 30 days. Borrowers default on one in five payday loans. The numbers for online payday loan borrowers are even worse. More than 50% of borrowers default.

9 Better Alternatives to a Cash Advance

We can all hopefully agree that cash advances, whether from a credit card or a payday lender, are something to be avoided at all costs. But we all know that there are still times when we need cash and need it fast. If you need money, try one of these 9 better alternatives to a cash advance.

1. A Personal Loan

You can get a personal loan from an online lender. It takes just a few minutes to check your rates and get an offer.  Once approved, you’ll typically have the money in a few business days. The loans don’t require collateral, and your interest rate will depend on factors including your credit score and debt-to-income ratio. The loan will be paid back in fixed monthly payments, and the term is typically between two and five years.

Credible is a personal loan marketplace. Borrowers can see rates from up to 11 top lenders offering personal loans from $1,000 to $100,000 in just two minutes.

Fiona is another personal loan marketplace. Borrowers can see rates from up to 10 personal loan options from various lenders ranging from $1,000 to $100,000 in just 60 seconds.

2. Side Hustles

Everyone should have at least one side hustle. It’s always good to have a little money coming in from something that isn’t your day job. And if you have a side hustle, you’ll be less likely to find yourself in the position of needing a cash advance.

No matter how much or how little free time you have, we have a side hustle for you on our list of 15 side hustle ideas to start making money right now. 

Two favorite side hustles are Rover and taking surveys for extra cash. Rover is a site that connects people who love animals with pet owners who need help caring for their animals. With Rover, you can make money walking dogs, boarding them in your home, or pet sitting in the pet’s home.

Survey sites like Swagbucks, InboxDollars, and Survey Junkie,  are sites where users get paid to do things like answer surveys, watch videos, and read emails. You can see a complete list of the best survey sites here.

3. Selling Plasma

Selling plasma is different from giving blood. Plasma is the portion of our blood obtained after red and white blood cells, platelets and other components are separated out. Plasma makes up about 55% of our blood and contains water, salt, enzymes, antibodies, and other proteins.

Plasma is used to produce therapies that help treat people suffering from severe health conditions, including immunodeficiency hemophilia, primary immune deficiency disorders, and genetic emphysema.

You can make up to $400 a month selling plasma. The first visit will take about two hours and subsequent visits about 90 minutes.

4. Sell Scrap Metal

You can sell metals like stainless steel, copper, nickel, aluminum, iron, brass, lead, and zinc at a scrap metal yard, sometimes called a junkyard. You can find these metals in things like old vehicles, appliances, and electronics. The yard will strip down these things for the metal they contain.

You’ll be paid per pound of metal, and because there is a big problem with people stealing metal out of construction sites and even things like utility hole covers, you’ll need to show identification at the scrapyard which will be kept on file.

5. Sell Electronics

You might think the old electronics you have stashed in drawers and closets are worthless but used electronics are big business. Sometimes the items are refurbished and resold and sometimes taken apart and individual components can be sold as scrap metal.

A lot of you have probably heard of Gazelle. You send in your used electronics like smartphones, tablets, cameras, and more, and they give you cash for them. But that process can take time. If you need cash right away, you can still use Gazelle.

Gazelle now has kiosks, often in Walmarts. You take the item to the kiosk, called an EcoATM, then it’s inspected and you’re given an offer. If you accept it, you get the cash on the spot.

6. Pawn Something

Pawn stores have something of a seedy reputation, but they are a legitimate source of money. You can either use an item as collateral for a short-term loan or sell it outright for the cash. Generally, you’ll get more money when you sell something.

7. Sell Something Locally

Pawn stores don’t accept everything, so if you have something to sell that they won’t take, you can still sell it locally for fast cash. You can sell things locally on sites like Craigslist.

8. Borrow from a Friend or Family Member

It’s never easy asking to borrow money, but if it means you won’t have to take out an expensive cash advance, it’s worth asking someone close to you if they’ll loan you the cash. You could also offer to do something for them in trade; mow their lawn, babysit their kids, or help clean out their garage.

9. Ask Your Job

You may be able to ask your boss, human resources, or payroll department if you can get an advance on your paycheck. Because we don’t get paid five days a week, but most of us work five days a week, you won’t really be getting a loan. You’ll simply be getting paid early for work you’ve already done.

Not every employer will do this, and you certainly don’t want to make a habit of it as it makes you look irresponsible to your employer — but it is something to consider.

The Bottom Line on Cash Advances

A cash advance is almost always a terrible idea. Even if you pay it back really quickly, you’ll still have spent a lot of money on fees and interest. And many people don’t pay them back right away, eventually finding themselves in a debt cycle that is hard to get out of.

Most people should be able to utilize one or more of these alternatives we’ve listed to get the money they need – and avoid the costly mistake of turning to a cash advance.