Emergencies arise, and thankfully, if you no longer have an emergency savings account, there are other options. Paycheck advances and credit card advances are easy ways to access cash you need in a short amount of time. However, is one better than the other?
What Is a Paycheck Advance?
A paycheck advance is a loan against your next paycheck. A paycheck advance store will approve your loan up to your standard paycheck amount. The terms are to repay it in full on your next pay date. The money is automatically withdrawn from your checking account.
• Can be approved for up to the amount of your standard paycheck
• Great backup funding in case you’ve maxed out all alternatives
• No credit checks
• High interest fees
• Must be paid back by your next paycheck
• Can overdraw your checking account
• You can become dependent on paycheck advances
What Is a Credit Card Advance?
A credit card advance is accessing the available credit line of your credit cards. Instead of waiting for approval or the funds to be sent to you, you can access your money immediately via an ATM or a convenience check. You can handle life’s unexpected expenses that you can’t use your credit card for.
• Immediate access to the funds
• It can be paid back over extended time
• You have a pre-approved amount available
• Possible ATM fee if you do not use the associated banks ATM
• Standard transaction fee
• A higher APR than charges, sometimes up to 7% higher
• There are no grace periods, so you will have accrued interest the moment you withdraw
• A chance you can go over your credit limit and impose additional fees
Is One Better Than the Other?
As you can see, there tend to be more disadvantages with a credit card advance. However, if you are not living paycheck to paycheck, you may do better off with a credit card advance.
Paycheck advances are more difficult to get out of if you find yourself in the same situation the next go round. If you have defaulted to using them that means, you may not have had any emergency funds to turn to, such as your credit card.
There is a term called The Payday Loan Shuffle, which means those who take paycheck advances often take another to help cover the prior loan. You run the risk of closing your checking account and being in debt for a while.
You can eliminate accruing interest with a credit card advance. You can get a no-interest balance transfer offer or quickly minimize your interest by making larger payments.