5 Alternatives to an Expensive Cash Advance

If you're considering a cash advance loan to cover unforeseen expenses, make sure to evaluate all your options first.

When an unexpected bill occurs, you might find yourself considering a cash advance loan to make ends meet. Cash advance loans are typically available through credit cards or payday lenders and often come with high interest rates or fees.

If you have bad credit, these short-term loans might seem like the only option to access cash quickly. Before you settle for a cash advance, though, make sure to explore cheaper and less risky ways to cover surprise expenses. These five alternatives are a good place to start.

Key Question: What Are Inexpensive Alternatives to a Cash Advance?

Key Takeaways: 

• High-interest cash advance loans aren’t the only way for individuals with poor credit to access cash quickly.
• Borrowing from friends and family can offer low-interest funds, but risks straining personal relationships.
• Charging a surprise expense to a credit card can be more affordable than taking out a cash advance against that card.
• Personal installment loans can offer longer repayment timelines and easier budgeting for debt management.
• Negotiating a payment plan directly with a lender can help avoid taking on extra debt.
• Pawn shops allow you to use personal property to collateralize short-term loans without the need for a credit check.

1. Friends and family

If you’re facing financial difficulties, leaning on your support network can be a practical way to access short-term cash. While borrowing money from friends and family certainly has its downsides, this route has several advantages over a cash advance loan.

If you resort to a payday lender, it’s not uncommon for cash advance loans to have average APRs of 400% or more. Credit card companies, meanwhile, typically charge extra fees to access a cash advance. In contrast, your friends and family may allow you to borrow funds for little or no interest.

The downsides, on the other hand, can also be significant. Failing to repay money borrowed from friends and family can irreparably damage your personal relationships. Moreover, borrowing large amounts from someone could risk putting that individual in a precarious financial position of their own.

Unlike a traditional loan, friends and family members are more likely to be flexible with payment dates. While this can be a positive by allowing you to repay when it’s financially feasible to do so, flexibility can also become a negative. Failing to pay on agreed-upon due dates can strain a relationship.

If you are able to borrow money from friends or family rather than taking out a cash advance loan, setting clear terms before any cash changes hands can align expectations and demonstrate your commitment to repayment.

Benefits of borrowing from friends and family

• Low interest: Friends and family are likely to charge reduced interest rates compared to cash advances.
• Payment flexibility: You won’t have the pressure of fixed, short-term repayment timelines.
• Emotional support: Reaching out to your support network can offer an added emotional boost as you navigate financial challenges.

2. Credit cards

One method for accessing a cash advance loan is through a credit card, by withdrawing cash from an ATM or a bank. If you have access to a credit card, however, it often makes more financial sense to charge the surprise expense to your card rather than taking out a cash advance loan.

Not only do credit cards often charge higher interest rates for the amount of the cash advance, but this interest typically starts accruing immediately. In addition, extra fees might be assessed on the cash advance, possibly as high as 5% of the total amount. In contrast, a typical credit card expense does not incur extra fees and interest does not start accruing until after the grace period.

If you’re paying a vendor who insists on taking cash, it may be worth negotiating to see if they can accept payment via credit card. Be prepared to offer a small markup to cover processing fees. While this amount can be up to 3.5% of the transaction, that’s still cheaper than most cash advance fees.

Benefits of using a credit card

• Lower fees: Credit card cash advances typically come with higher fees and interest than credit card purchases.
• Grace period: Interest on credit card purchases does not start accumulating until after the grace period.
• Credit card rewards: Unlike standard expenses, credit card cash advances are typically ineligible for rewards.

3. Installment loans

Not all bad credit loans are of the short-term variety. Some come with longer repayment terms, an amortizing payment structure, and possibly even better interest rates.

These are installment loans, and they may be worth consideration. Personal installment loans can offer quick access to cash and are repaid in fixed monthly amounts. By incorporating information like income or employment status when making lending decisions, some personal lenders are even able to offer lower interest rates than other bad credit loans.

Because these loans are repaid in regular monthly installments, they can make budgeting for debt repayment easier. In addition, the lender may even report your payment information to the credit bureaus, meaning that on-time payments can help raise your credit score.

If you’re considering a bad credit installment loan, make sure to ask how the lender checks your ability to repay. While some of these loans are considered “no credit check loans” because a hard credit check isn’t necessary, you might still need to provide other forms of documentation, such as pay stubs or employment history.

Benefits of getting an installment loan

• Broader due diligence: Personal lenders often conduct broader due diligence than just looking at your credit score, which can be helpful for individuals with bad credit.
• Lower interest rates: If you have a steady income, you may be able to qualify for lower interest rates than typical cash advance loans.
• Fixed monthly payments: Fixed monthly payments are easier to budget for, helping you manage debt over time.

4. Payment plans

Rather than borrow to pay for an emergency expense, you may be able to negotiate a payment plan directly with the vendor. This allows you to pay down a large bill over time without needing to resort to additional debt.

When it comes to medical expenses, hospitals frequently offer payment plans directly for little to no interest. In addition, you may be able to negotiate down the amount you owe or access hardship programs that cover a portion of your debt.

Vendors like mechanics or home contractors may be willing to offer a payment plan for emergency expenses. Even if they don’t provide payment plans directly, third-party customer financing providers are becoming more popular. Paying as much of the bill upfront as you’re able can help minimize your interest costs as well as demonstrate your commitment to pay in full.

Benefits of negotiating a payment plan

• No additional debt: Payment plans help you pay off an unexpected bill without incurring additional formal debt.
• Low or no interest rates: Some vendors may allow you to pay off your bill over time without charging additional interest.
• Access hardship programs: Certain types of expenses, like medical bills, may qualify for hardship programs that write off a portion of your bill as part of a payment plan.

5. Pawn shops

If you have access to valuable personal property, pawn shops can provide a way to turn that value into cash without needing to sell the property itself. Many pawn shops offer secured lending services, where you post a valuable piece of property as collateral for a small-dollar loan. While interest rates and fees vary, they tend to be high, with APRs ranging anywhere from 12% to 240%.

Even if you can access a competitive interest rate, though, the downsides of pawn shop borrowing can be significant. If you fail to repay the loan within the agreed-upon period, the pawn shop will seize and sell your collateral. Moreover, to manage their risk, pawn shops tend to only be willing to lend up to a small fraction of the value of your property.

Benefits of getting a loan from a pawn shop

• Avoid selling property: Pawn shop loans allow you to turn valuable property into cash without needing to sell your assets.
• Secured lending: Generally, secured lenders can only go after collateral for repayment, not your other assets or accounts.
• No credit check: Because pawn shop loans are made based on the value of the collateral, few lenders will check your credit score.

Conclusion

When it comes to paying for an unexpected expense, nothing beats having an emergency fund ready. If you’re still building your emergency fund, though, these five alternatives can offer more cost-effective and less risky ways to pay off a surprise bill than a cash advance loan.

Still, need more information on cash advance loans to help you make a decision? Explore this article on the topic to learn more.