If you’ve been around this blog before, you’ll know how we feel about cash advance operations. We don’t just denounce them because they’re our competition. In fact, we don’t put them in the same category at all. Paycheck advances can be harmful to your financial future, and believe it or not, despite your situation, you have better alternatives. Here are six reasons why you should avoid cash advances:
1. High APRs
Cash advance operations generally have massive interest rates, which would be considered outlandish for any other type of loan. Sometimes they can get as high as 500%. That’s just not feasible, and no amount of perceived convenience accounts for it.
2. You need a credit card anyway. You’re better off just using it.
Most cash advance places require that you have a credit card to even apply. So if you can borrow $500 at 500% or at your credit card’s rate of 20-30%, why not just use your credit card to get the money you need? Cash-only businesses are becoming increasingly rare, but some private sales still require cash. Still, even if you specifically need paper cash to buy something, talk to the seller. You may be able to transfer the funds digitally via an app like PayPal.
3. Interest is instant, not a month later.
Remember those exorbitant interest rates required by the cash advance? They start immediately. With a credit card, you have a month or two to pay off the principal before the interest starts rolling in. Not so with a cash advance. As soon as you sign that contract, you owe your first period of interest, whether you pay off the loan the next day or the next week. Again, a credit card is a better option.
4. Shady business practices.
Cash advances often use shady and unscrupulous business practices to get you to sign up. These include everything from fast-talking to the extra fine print. Their goal is often to get you stuck in a cycle of debt, where you need to take out a second loan in order to help you pay off the first, a third loan to help you pay off the second, and so on. You end up paying them many times what you borrowed in the first place, rather than just the principal and a reasonable amount of interest, as you might get with a traditional personal loan.
5. Hidden fees.
One of the aforementioned shady business practices is the hidden fee, and cash advance operations love it. Every loan has fees associated with it— outside of the already exorbitant interest rate being charged. Reputable lenders will be upfront with you about what those fees will be, when you can expect them to be incurred, and if you can/cannot avoid them. You’ll know exactly what to expect before you sign your contract.
Cash advances, however, tend to hide fees in confusing legal jargon and fine print. A favorite fee of theirs is the early repayment fee, which penalizes you for paying off your loan too fast. At Helix, we never charge for early repayment. In fact, we encourage it. Yes, this may cost us a little in “missed” interest, but we want you to be financially stable, and it’s better for all of us if you don’t have debt hanging over your head.
6. Better alternatives exist.
Sometimes financial emergencies are inevitable. We’d all love to have plenty of savings to cover unexpected expenses, but building those savings takes time, and life doesn’t always happen on your schedule. Still, there are better options than getting a massively expensive cash advance loan from a disreputable lender:
No one wants to ask family for money. We want to prove that we can make it on our own, and sometimes family members can be just as financially pressed as you are, and you don’t want to add to their stress. Still, if you need money, a loan from parents, grandparents, or aunts and uncles might be your first resort. It often comes with little to no interest, and family members probably want to help you anyway.
They are not to be used without discretion, but we discussed above how credit cards are a better alternative to payday loans. You have an interest-free “grace period” between the time you charge an expense and the time you pay the card. You’ll improve your credit score if you pay your card on time. You can even earn points to save money on your next trip, online purchase, or tank of gas, depending on the card you use.
A personal loan
A short term installment loan is another option. Like a credit card, it can be used to boost your credit score if you pay it off according to your scheduled agreement. Unlike a payday lender, you’ll be clearly told the terms of your loan upfront, and you will know exactly how much the loan will cost you before signing anything.
Yet many borrowers don’t even bother applying for personal loans because they think they won’t be approved without a high credit score. Banks and lenders may have already turned them down. This can be frustrating because the best way to build credit is to pay off a loan on time. But if you can’t get a loan without a good credit score… the cyclical reasoning becomes apparent.
At Helix, we understand that cycle and it’s our aim to break it. When you apply with us, your credit score is only one of the factors we use when evaluating your application. We’ve helped thousands of people with what the industry would call “sub-prime” credit scores get personal loans. In fact, this segment makes up about 60% of our customer base. The application process takes about five minutes, and you’ll receive a decision instantly. Best of all, we won’t call you. Everything is done online. And if approved, you’ll see the money in your account within a single business day. If you need a personal loan, apply with Helix today.
No one wants to borrow money, and once you’re out of debt, a well-stocked savings account will help prevent that need in the future. But for now, avoid cash advance operations at all costs— and save yourself a heap of trouble.