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Before Taking Out a High-Cost Cash Advance, Talk to Your Employer About a Salary Advance
Oh No! You just had a financial emergency and you don’t have the money to cover it!
Hopefully that previous sentence was untrue. But if it was, what would you do?
Ideally, you’d have an emergency fund stashed away, but that’s clearly not always the case. Your next best bet would be reaching out to a friend or family member who might be able to help you.
If your credit is good, you may be able to get a personal loan from your bank. If your credit is bad or non-existent, then you’re going to have to choose between the best of bad options.
You could take out a credit card cash advance.
One option you might consider is a cash advance loan. This is a loan taken out with your credit card and it tends to have higher interest and fees. Also, unlike using your credit card regularly, there’s no grace period, so those higher interest rates will be kicking in immediately. (For information about the broader concept of cash advances, check out the OppU article What is a Cash Advance?)
Beyond the higher rates and lack of a grace period, you also need a credit card to get it, and if your credit is in a bad place you might not even have access to one. If you do, however, it might be an okay solution, depending on your situation—especially if you’re able to pay it off before too much interest accumulates.
Steer clear of predatory loans calling themselves 'cash advances.'
Wait a minute! You don’t have a credit card, and yet you’ve seen ads about people just like you getting cash advance loans. Well here’s the secret: those aren’t actually cash advances.
Those are often predatory no credit check loans, either similar or identical to payday loans. These are personal loans that don’t require a credit check, but they do have extremely short payment terms and interest rates so high that they make actual cash advances look like a friendly loan from your nana.
You really want to avoid these kinds of bad credit loans if at all possible. If you can’t pay back the loan in full within the short payment time, you’ll be forced to pay a fee to roll over the loan. This can quickly land you in a spiral of debt.
Depending what the emergency is, it may be your only option, but it should be the absolute last resort. And rather than getting a short-term loan, you may be better off with a long-term installment loan that will give you more affordable payment terms.
But even if you don’t have friends or family you can ask for help, maybe there’s someone else you can turn to?
You can ask your employer for a salary advance, but be prepared to hear 'no.'
What if you could ask your boss for an advance on your paycheck? Assuming this financial emergency is immediate but small enough, that could be exactly what you need. But how realistic is this option?
“It’s becoming less common or realistic that an employer provides advance payments to employees,” warned Robin Schwartz, managing partner of MFG Jobs. “There are many federal and state regulations, which can make offering advance payments very difficult for payroll administrators in companies. The hassle often results in organizations refusing to provide advanced pay. There is no way to know for sure without asking the payroll administrator in your organization or checking the personnel policy manual to determine if a policy currently exists."
"If you are not able to take an advance on your pay," she adds, "you may want to inquire as to whether accrued vacation days or PTO is available to ‘cash in.’ Some organizations provide ‘emergency loans’ in lieu of payroll advances for employees in need. Talk to your HR leaders as to what financial support might be available to you as an employee.”
Speaker and business expert Heather Monahan offered similar insight: “While every company is unique, I don’t see it as the norm for companies to provide advance funds for employees. However, I do believe it is always a good idea to ask for something that you want. Getting in the habit of asking for things is ultimately a practice that will pay dividends over time. Realizing that the worst thing that can happen is you are told no is a great expectation to move forward with. I would simply ask for help. Often times asking for help will cause the other person to feel more inclined to help and get you what you need.”
So as long as you have a good relationship with your employer, it probably wouldn’t hurt to ask. But it shouldn’t be something you rely on.
There's hope for salary advances and employer loans becoming more common.
If you’re a state employee, there may be some new initiatives on the horizon that could help you out in a situation like this. Our Inside Subprime blog recently covered a New Mexico law that will allow state employees to get a reasonable advance on their paycheck. It might be worth calling your local representatives now and seeing if something like this could be possible near you.
And of course, try to start building that emergency fund now. Then you won’t have to worry about any of this. Now go and have yourself a day empty of financial difficulties and full of wonderful experiences!
Heather Monahan (@_heathermonahan) is a business expert, mentor, and speaker. She works to empower women to succeed by celebrating their strengths & utilizing what makes them unique.
Robin Schwartz is the managing partner of MFG Jobs, which connects employers and job seekers in manufacturing. She leverages her years of experience in HR to bring functional change to organizational leadership and direction to management structures and employees.