Cash Advance Loans & Advance Check Cashing: Pros, Cons, and Alternatives
Cash advance loans and check advance loans are both names for the same thing: a payday loan. While there are some minor differences, they have the same goal of getting you money before you receive your paycheck, which you then use to pay off the loan. The loan itself is a short-term loan with high fees and interest. Because of their poor reputation and terms, they go by different names and descriptions, but still offer the same (often predatory) service.
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What Is a Cash Advance?
A general cash advance is a means of getting cash upfront for short-term or immediate needs. You can get a cash advance through your credit card, through a lender — usually a payday lender — or in some cases through an employer. The last option would involve asking your boss for the money in advance, as opposed to taking out a loan.
What Is a Cash Advance Payday Loan?
Also called a “cash advance loan” or simply “payday loan,” this is an unsecured loan based on a pending paycheck that allows you to get funds faster. It’s a short-term loan, and while technically a personal loan, the two are slightly different. Because it’s based on a pending paycheck, you will need to provide a postdated check, to be cashed after your paycheck is deposited This can be handy if you need money after bank hours or over the weekend, when banks are closed. The major problem is that the lender requires you to repay the loan at high interest, often around 400 percent, or for a significant fee.
What Is a Paycheck Advance?
A paycheck advance, also called a payroll advance, is similar in concept to a cash advance loan. However, it’s less risky, as it is done through your employer, and for money you have already earned. It’s best to think of it as getting your paycheck early.
Unlike loans, this is money you are entitled to and is not required to be paid back; alternatively, an employer may offer Employee Loans, which are different than advance pay, and may be subject to interest. There may also be tax implications, as the IRS expects interest income for advances.
The employer, however, cannot charge interest that would cause the pay to fall below minimum wage, and in some states, the employer cannot make a profit from payroll advances. Because the laws and requirements can be so complicated, these types of advances are relatively uncommon with most employers.
What Is Advance Check Cashing?
Payday loans have a bad reputation, and not unnecessarily so. In all but name, advance check cashing is the same as a payday loan or a cash advance loan. It is often used as a euphemism to avoid advertising “payday loans.” It is important to make a distinction here, as this is not the same as cashing a post-dated payroll check; it is just another name for a payday loan.
Cash Advance Loans Online
Mobile technology has caught up with cash advance loans. Lenders now offer their services remotely through apps, with no in-person visit required. While this makes getting a cash advance more convenient, the same problems exist as with traditional payday loans. There is one more caveat: many online lenders don’t provide access to your cash until the next business day. In most cases, you would be better off waiting and going to a bank.
Alternatives to Cash Advance Loans and Advance Check Cashing Services
The loan might have higher interest, depending on your credit score, or you may have to apply for a secured loan with collateral. In that case, if you fail to make payments on your loan, the lender has the right to take the collateral for themselves, in order to sell it and recoup the lost money.
An alternative to getting a personal loan by yourself would be to have a cosigner with better credit also on the loan. Just know that if you do not pay back the money, you will wreck their credit, and likely their friendship.
Other options are available, but one of the easiest might be to ask someone who you trust, and trusts you, to front them the money until you are paid. It might be an uncomfortable conversation, but if you are truly in need and it’s an emergency, you might find friends and family are willing to help.
Get Your Paycheck Early
Finally, as mentioned above, you can ask your boss for help. This can be far more uncomfortable than asking friends and family, and will also reveal the delicate financial situation you are in.
It’s best to research company policy first. The company may not even allow paycheck advances, making you asking your boss a moot point. There might also be restrictions in place, such as only allowing advances in a dire situation, like a medical emergency or vital home repair.
One more factor is whether this will, like predatory payday loans, put you on a financial treadmill. Taking the money now will lower your paycheck for when you are actually paid. If you need all of that money then, you will be short, which will necessitate finding more money, which quickly spirals into continually borrowing money.
While cash advance loans and advance check cashing are not the best option available when you need a short-term loan, they do provide a service and fill a niche. If you do not rely on them more than in an emergency situation, and are timely with paying the loans back to avoid outrageous interest rates, then they might be a viable short-term loan for you.
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A former newspaper journalist, Cole spends his free time reading, writing, playing video games, watching movies, and learning about every subject under the sun. He lives with his wife and daughter in Idaho. Follow Cole on Twitter: @ColeMayer42
This post was updated September 20, 2018. It was originally published September 22, 2018.