Cash Advance Now: Advice

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Question:

I feel like I’m between a rock and a hard place. I have two automatic debits for insurance and car payments set to hit next week, but my checking account is down to $25 (not enough to cover either) and my next paycheck will arrive four days after that. It’s frustrating because I know I have this money coming, money I’m earning even now, but if I miss those payments I’ll get hit by penalties that will add up to more than $100. That takes a bad situation and makes it worse. Any ideas?

Answer:

You just summarized the problem faced by millions of people every day. You may be working, but your expenses have gotten greater, you’ve been hit by some unplanned expenses or there were other members of your household who used to contribute to household income but now cannot. So even though you probably are watching your expenses very carefully, there still can be times when cash flow is inadequate.

You didn’t mention having a credit card, so I’ll just assume you don’t have one or that you know it can be dangerous to use one in a lot of situations. Here’s why:

- If you begin placing routine expenses on a revolving credit card, eventually your balance can build up to where you will be paying exorbitant interest rates on that card – up to 30% in many cases – digging a deeper hole every month. If the card becomes unmanageable, you might end up defaulting, which can affect your credit history for years to come.

- If you don’t have a credit card, you simply don’t have that option. Then where do you go? Borrow from friends and family, although that can backfire very quickly.

To that second point, there are some (very rare) employers who will provide a paycheck cash advance. Now, this was much more common fifty or more years ago, much less so today in larger companies or any company where the employee does not have a good relationship with the owner.

A cash advance (loan up to 3-6-12 months) now is more likely to come from a payday loan company. As with any form of borrowing, you have to be aware of what is involved in taking such a loan. But if managed wisely, it can be a smart tool. As you noted yourself, paying out overdraft fees and other penalties isn’t such a smart thing either, so a loan that will end up costing you less money – or which can help you if you are trying to build up a good credit rating – can be a smart move.

How do they work? Here are simple facts of payday loan “cash advance now” methods of borrowing:

- The lender is most interested in seeing that you have a job.

- There is no collateral required (you do not have to surrender an item of value as you would with a pawnshop or a car title loan store).

- You will not be subject to a traditional credit check.

- The money from online lenders is sent electronically to your bank account.

- There are both online and in-store cash advance lenders now (payday loan stores on street corners are losing marketing share to the online companies).

If you elect to go to a street corner store, be sure to check the loan terms before signing any documents. This might be time consuming, as you might need to wait in line before speaking with the teller about those terms.

If you instead use an online payday lender (which I recommend), you can either visit multiple sites (via a search engine) to check their loan terms. Beyond just checking for their interest rates, look also at their loan fees and repayment schedules, particularly to see if it fits your plan for repayment. Or, you could also try using "MPL", which looks at multiple online lenders to provide a recommendation for you and your circumstances.


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