Let’s get one thing straight; no matter how you slice it, when you’re short on money, looking for a quick cash advance is the Hail Mary pass of personal finance. So a cash advance should always be the option of last resort.
In an ideal world, during a financial emergency, everyone would simply tap their rainy day savings account that they have set aside for unexpected expenses.
Of course, the reality is there will always be people out there who find themselves between that financial rock and a hard place where they absolutely positively need some fast cash but are completely tapped out.
So what to do?
To be sure, there are no easy answers when you’re flat broke and faced with a financial crisis needing immediate attention.
In fact, when it comes right down to it, none of the alternatives are very savory. To prove it, here’s my own little cash advance comparison that highlights the pros and cons of some potential options.
Payday Loans
Pros: Payday loans (also known as cash advance loans) are quick to secure. Usually with cash in hand on the same business day. They are also convenient; you can typically get them online. Best of all they do not usually require good credit or any type of collateral.
Cons: Fees can reach up to $40 or more for every $100 that you borrow, which is extremely expensive compared to traditional loans. It’s not uncommon for lenders to advertised 14-day loans for $100 that came with a fee of $17.65 — that’s an annual percentage rate of 460%! You must pay them back quickly too; usually within a couple of weeks. Otherwise, it gets even more expensive. So it’s probably good that most payday loans are limited $1500 or less. One last thing: Payday lenders usually don’t report payments to credit bureaus – only defaults. So the loan can only hurt your credit score.
Title Loans
Pros: Like payday loans, title loans do not usually require good credit. Title loans often come with higher limits than traditional cash advance or payday loans. Quick repayment of title loans will also help improve your credit score.
Cons: This cash advance option is typically just as expensive as payday loans. The reason title loans have higher loan limits than payday loans is because you typically secure them with the title to your automobile. So if you don’t repay the loan you’ll lose your car.
The Bank of Dad
Pros: These types of loans come with no fees and usually have low interest charges, if any at all.
Cons: Borrowing from a friend or family member won’t improve your credit score if you pay them back. Even worse, if you don’t pay them back, you risk straining or severing the relationship.
Loan Sharks
Pros: Usually willing to loan as much as you need. (Er … so I’m told.)
Cons: High interest rates make the APRs of legitimate payday and title loan companies look downright inexpensive. You typically secure your loan with personal body parts; legs and arms are especially popular. Friendliness and compassion are not strong suits of their customer service department.
Bank Robbery
Pros: I think they’re pretty obvious, don’t you?
Cons: Not only is robbery illegal, but it’s also extremely dangerous. In fact, it’s a stupid idea altogether; the typical penalty is 25 years in the state pen. On second thought, forget I even brought this one up.
The Moral of the Story
Remember, folks: Payday loans, cash advances, and title loans are not for long-term financing. You should also always repay them as quickly as possible because of their expensive fees and high interest rates. Those who don’t will find themselves in an even deeper hole to dig out from — so think carefully before deciding to get one.
As you can see, none of the cash advance options I’ve presented are very attractive, which is precisely why it’s extremely important to establish — and faithfully maintain — emergency and rainy day funds. Do that and you’ll never have to worry about making such a tough decision in the first place.
Photo Credit: Jesse Wagstaff
It’s a really stupid idea to rob a bank. Putting a note in front of a teller’s face can yield you anywhere from $200 to $2000, and that’s it. I can tell you that from my days as a teller, I never kept more than $1000 at my station. That’s not a lot of wampum, especially when you consider the legal ramifications getting caught can bring.
I had a relative and some coworkers get burned by payday loans. They’re a quick fix, but they’re usually much more trouble than they are worth. Love the list- having the pros and cons is helpful. Maybe some people will look at other alternatives.
Many, many years ago I got caught up in the payday loan cycle and paying them back on time doesn’t get reported to the credit bureaus. So essentially, a payday loan does nothing to improve your credit, but if you don’t pay it back it can wreck it.
A remedy to not having to hit up these truly bad options is creating a budget.
P.S. I like the comment about paying loan sharks with body parts. LOL!
You also didn’t mention the plain old credit card cash advance. Take your high-interest credit card (because, lets face it, if you are getting a cash advance off a card you probably didn’t get the best rate), put it in an ATM, and take the cash! It will only cost you 30%+ APR in the end!
One thing I didn’t see here that’s worth mentioning is tax return anticipation loans. The biggest ‘seller’ of these (H&R Block) was not even allowed to do them at all this year because of how awful they were in the past.
I found the Loan Sharks and Bank Robbery cons very funny! You’re right, none of these options seem good to me either. What is your opinion about credit cards as some kind of “cash in advance” in case of emergency?
I hit up the Bank of Dad in college when I got accepted into a program to study Greek literature. I hadn’t planned on applying or getting into it and since I was committed to going at that point it was Dad or a student loan. Luckily, Bank of Dad has no interest rates.
Very nice coverage of an icky subject. Planning sure beats the options. The bank robbery one was a clever twist. Don’t hear too much of that one in the personal finance lit!
Of course, robbing a bank is a little bit like robbing a post office facility by force. Both crimes can be considered a Class B Federal Felony if you do it – hence the very severe prison sentence of up to 25 years if you are caught! Just don’t even think about doing this at all! Not worth the trip to federal jail!
Len,
As someone who used to work in the industry, I can confirm that payday loans don’t report in positive payments … only negative, if there is a default. Using payday loans will not raise your credit score in the three major reporting bureaus, but each company may raise the amount you are able to borrow on subsequent loans. It is a very expensive way to get money.
Set up a HELOC? That seems to be popular these days. All those loan options above are pretty bad. Although I heard loan sharks are actually cheaper than payday loans.
Yeah, but the collateral requirements are a bit steep.
@Len, don’t you think that some credit cards have a lot lower interest rates than payday loans or title loans?
Regarding the bank of mom and dad.
I have a friend who calls around to friends and family and offers her services when she’s running low on cash, so it’s not a loan but a job. And Len, I know how dirty your mind can be..by services, I mean babysitting, painting or housecleaning.
She’s a psych major, so she’s really good at offering you something you want/need, so it’s a win/win. She knows I’ll jump at any offer of babysitting, so instead of feeling awkward about the solicitation, I am overjoyed at the prospect of having a night out.
Len, maybe the bank robbery idea isn’t too bad after all. Just look at the benfits you will get while incarcerated: Free housing, Free food & drinks, Free medical, Free dental, Free vision, Free exercise areas, etc. That folks is a lot of Free stuff! And money saved!
But, I WILL NOT go to jail for bank robbery.
And I’m not recommending anybody else choose that route to financial independence either.
Uhh Len, I guess I forgot to put in my post: [[sarcasm]] for the being in jail is a good deal.
That definitly does NOT appeal to me.
And I *still* don’t recommend it to anybody else either.
Signature lines of credit still exist.
You can’t be a deadbeat, but rates are way better than any credit card.
I work at a bank also and i would say its really not worth it. You would probably get 5k Max. Also, it is a federal crime!
Banks….a note at the bank…I was told that is where the money resides….I may need to put on my mask, a hat and sunglasses and then hand in a note. All while glancing quickly to my right and left, before sprinting out the door. What about pawning your wife/girlfriend’s jewelry? Not sure which of these would be best?
The consequences for robbing a bank are definitely lighter, CO2.
If it wasn’t a huge sum I needed maybe a quick yard sale? Pawning jewelry or other valuables? Or selling jewelry at a pawn shop? Consigning clothing to a thrift shop?
Of course the ideal thing would be in advance to start a small side business selling unwanted items online or through FBM and Craigslist and putting the money in the bank for a rainy (financially speaking) day. If you drive through any nice neighborhood on trash day you can pick up interesting, salable things off the curb and aside from cost of gas, get your merchandise for free. Neighbors and family are a good source of things to sell, particularly older people who would like to declutter. You can sell on shares or commission and help the neighbors clean house and while earning money for both of you. Just remember to bank the profits for your emergency fund.