Cash advances allow you to borrow money quickly when you need funds right away. While cash advances provide a convenient solution for fast cash, they come at a high cost with fees and interest rates that can significantly impact your finances if not used carefully.

This comprehensive guide covers everything you need to know about cash advance fees, interest rates, alternatives, and responsible use to make informed decisions.

What Are Cash Advances and How Do They Work?

Cash advances, also known as payday loans or payday advances, are short-term loans designed to provide funds in between paychecks when you need cash urgently. They allow you to borrow a small amount, usually $500 or less, and receive the money instantly or within one business day.

Unlike personal loans or credit cards, cash advances do not rely on your credit score for approval. Instead, lenders confirm you have a regular income source and active checking account. The loan amount plus fees are then withdrawn from your account on the next payday, which is usually within 14-30 days.

Cash advances are easy to qualify for as long as you have a job and bank account. Approvals can happen in minutes, either online or at local storefronts. This makes them convenient during financial emergencies compared to traditional loans. However, they come at a very high cost.

Cash Advance Fees and Interest Rates

Cash advances earn revenue through upfront origination fees and ongoing interest charges. Understanding the various fees, high interest rates, and how quickly costs accumulate is key to using cash advances responsibly.

Origination and Processing Fees

When you first take out a cash advance, the lender charges an upfront one-time origination or processing fee. This fee is typically $10-$30 for every $100 borrowed.

For a $500 loan, your origination fee would be $50-$150. This fee is usually deducted from the loan amount. So if you need $500, you might receive $350-$450 after the fee.

Rollover or Extension Fees

The origination fee covers the initial loan costs for the lender. However, if you cannot repay the full amount by the due date, extremely high additional fees apply.

Rollover fees are charged if you “roll over” the loan – extend the due date by paying just the fees but not the principal. The rollover fee is often the same as the origination fee, or $10-$30 per $100 borrowed.

For a $500 loan rolled over after 2 weeks, you might pay a $75 rollover fee to extend it another 2 weeks. These fees can accumulate rapidly if the loan keeps getting extended.

Late Payment Fees and Penalties

If you miss repayments or do not pay back the full amount by the deadline, substantial late fees apply. This is on top of any rollover fees if you also extend the loan term.

Late fees are typically a fixed amount like $20 or a percentage of the unpaid balance. Defaulting on the loan also leads to penalties, increased fees, and negative credit bureau reporting that damages your credit score.

Interest Charges

In addition to various fees, cash advances charge interest on the loan, usually around 10-30% if repaid on time.

While this interest rate seems reasonable compared to credit cards, when coupled with origination fees, the Annual Percentage Rate (APR) on cash advances often exceeds 300%-500%.

This means the actual cost of borrowing $500 could be over $1,000 including fees and interest if extended beyond the first payment period.

Why Are Costs So High?

Cash advance providers earn most of their revenue through fees charged on each transaction and when borrowers extend loans. Their business model relies on customers being unable to repay on time and rolling over loans repeatedly.

Each rollover generates more fees rapidly multiplying the total amounts payable. This makes cash advances extremely expensive in the long run compared to alternatives like credit cards or personal loans.

High costs allow providers to profit even with defaults and non-payments by some customers. However, for borrowers, costs spiral out of control with multiple extensions making cash advances unsustainable.

Alternatives to Cash Advances

Cash advances should only be used as an absolute last resort during financial emergencies, and not as recurring sources of income. Here are some lower cost alternatives to consider first:

  • Employer salary advance – Ask your employer for a paycheck advance or payroll loan if allowed. This lets you borrow a portion of your earned pay now at lower interest repayable on the next payday.
  • Credit counseling – Non-profit credit counseling services can help negotiate late fee waivers, reduced payments, or freeze interest temporarily with creditors until you get back on track.
  • Community assistance – Local charities, churches, food banks, utility companies, or government agencies may offer emergency financial relief or loans to get through a crisis.
  • Credit cards – Despite high rates for extended balances, credit cards offer lower costs for one-time borrowing if repaid quickly. Balance transfer cards allow up to 18 months of 0% APR.
  • Traditional personal loans – Banks or online lenders provide installment loans at lower rates without fees, but approval requires good credit.
  • Credit union payday loans – Some credit unions offer small loans with costs capped at 28% APR by law, a safer alternative.

The key is borrowing only what you can realistically repay on time without extensions to avoid snowballing fees. Cash advances should not become a way of life or primary income source.

Responsible Cash Advance Use

If you do decide to take a cash advance in an emergency, here are some tips for keeping costs under control:

  • Borrow as little as possible – Take the minimum amount absolutely needed so the principal balance is low.
  • Have a firm repayment plan – Know exactly when your next paycheck arrives and allocate funds to repay on time.
  • Avoid extensions – Pay back the full principal within the initial term without rolling over to prevent fees accumulating.
  • Read terms carefully – Cash advance ads tout “up to $500!” Make sure to only accept what you really need.
  • Don’t borrow for wants – Only use for true emergencies like medical bills, not shopping splurges.
  • Build savings – Having even a small cash buffer prevents needing to borrow at high costs for minor shortfalls.
  • Increase income – Financial issues requiring ongoing cash advances indicate a need to earn more through a side job, promotion, or new career path.
  • Get free counseling – Non-profits offer personalized advice on reducing reliance on expensive short-term borrowing.

With discipline and a commitment to get your finances on track, reliance on cash advances will reduce over time as your situation improves.

Questions to Ask Cash Advance Providers

If you do opt for a cash advance, researching the best rates and fees in your state and asking the right questions is essential:

  • Is your company properly licensed in my state to offer loans legally?
  • What verification information do you require from borrowers?
  • What are your exact fees for a specific loan amount in dollars? Avoid percentage quotes.
  • Do you have any initial sign up bonuses or discounts for first-time borrowers?
  • What happens if I repay early? Is there a penalty?
  • What are your late fees if I miss a payment and the process if I default?
  • What options do I have to extend repayment if I need more time?
  • Are there additional fees for accessing funds instantly versus 1 business day?
  • Are there extra charges for different repayment methods like debit card vs bank transfer?
  • Will my repayment be reported to credit bureaus to build my credit score?

Ask for any answers over email for future reference. Never feel rushed or pressured into borrowing.

Comparing Cash Advance Offers

With hundreds of cash advance providers online and locally, doing your research is critical before choosing one:

  • Compare quotes – Ask for rate and fee quotes from multiple companies before applying. Approval processes often run a credit check that can negatively impact your score.
  • Read reviews – Check third-party consumer sites for feedback on lenders. Be wary of “review” sites affiliated with providers.
  • Check complaints – Your state Attorney General’s office and Consumer Financial Protection Bureau offer free complaint data on lenders.
  • Verify licensure – Confirm the company has a state license allowing them to operate legally. Unlicensed lenders can charge any rates without oversight.
  • Consider length – Longer 30-60 day terms have lower fees because more interest accrues compared to 2 week terms. But longer loans also risk higher rollover fees.
  • Read the fine print – Cash advance ads promoting fast easy cash often have hidden fees and clauses buried in small font terms and conditions.

Being an informed borrower is the key to ensuring affordable terms and repayment. If struggling later, contact the lender immediately to discuss alternative options.

Key Takeaways

  • Cash advances provide fast access to funds but charge very high fees of $10-$30 per $100 borrowed that compound rapidly with extensions.- The Annual Percentage Rate (APR) on cash advances often exceeds 300% once origination fees are factored in.
  • Lenders rely on repeat rollovers and extensions to generate revenue, so it’s critical to repay on time.
  • Alternatives like employer/credit union payday loans, balance transfers or community assistance can provide lower cost options.
  • Only use cash advances for true emergencies with a plan to repay on time, not for discretionary purchases.
  • Ask lenders detailed questions on all rates and fees over email before accepting funds.
  • Research and compare offers thoroughly as state regulations vary. Unlicensed lenders often have no fee caps.
  • Read all fine print and terms for hidden costs. Never feel rushed or pressured.
  • Contact providers immediately if struggling to repay and request extensions sparingly to avoid spiraling fees.
  • Address any underlying budgeting or income issues driving the need for ongoing cash advances.
  • Build savings and improve money management habits to reduce dependence on cash advances long-term.

The bottom line is cash advances come at an extremely high cost that is not sustainable. With financial discipline, education and improved money habits, the need for and reliance on cash advances will reduce over time.

Samuel Mitchell