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People may take cash advances in numerous ways, and several different types exist. Many of them have a single element in common. Most borrowers will have to pay more for a cash advance in fees or interest charges than they would if it were possible to wait until that cash came in other forms, such as a paycheck or a low interest rate loan.
Sometimes a cash advance is defined as borrowing on a line of credit, but simply borrowing cash. This may be done by using a personal credit card, and it’s often possible to get these cash advances at ATM machines. Alternately, some credit card companies give their customers checks, which can be deposited in a checking account or cashed. Advances are usually loaned at a higher interest rate than regular credit card use, with rates often a few percentage points above prime. If it’s possible to use a credit card to pay for something needed, instead of to take out cash with it, it may save money in interest later.
One of the types of cash advances with which many are familiar is the payday loan. There are many companies that will offer loans to help people cover expenses until their next paycheck arrives. Fees and interest for these loans are high, and people can expect to have to fork over quite a bit of their paycheck, once it’s received. Using payday loans may be a slippery slope for some, since ultimately, the fees and interest can reduce paychecks so much that there isn’t enough money to meet regular expenses, and more loans must be taken. Financial experts tend to recommend people avoid these loans under most circumstances because of the high costs.
Occasionally, a person might be able to get cash advances on a paycheck from an employer, which typically doesn’t cost money or interest. The way this works will vary from one employer to the next, and not all employers will grant this request. In emergency circumstances, it may also be possible to access a 401k, which might be better than taking a paycheck advance, though it can take more time to gain access to these accounts.
Other types of cash advances include the refund anticipation loan (RAL). These loans, again charge high fees and interest rates, and are disbursed based on what money a person will get back in income taxes. However, sometimes there are legitimate needs for income tax return money sooner, and a person might consider asking for an RAL if they have to have access to this money right away.