It can happen to anyone. You carefully plan out how you’ll spend your money each month so your paycheck more than covers your needs — and then something happens. Whether it’s an unexpected vet bill or a flat tire, life can bring about surprise costs that you didn’t plan on happening.
If you don’t quite have enough cash to cover the surprise expenses, you may be wondering how you can borrow money from your next paycheck now through a cash advance, loan, or personal loan. Each of these methods has its advantages, with the main advantage being quick cash. However, they also have some drawbacks to be aware of, too.
Even if you don’t need extra money this month, reading about your options for borrowing money can help you decide which is best. Then, if the time ever comes, you’ll be informed and ready to make the right choice for your finances.
Understanding short-term financial solutions
While the following methods vary a bit on how they work, the general idea is the same: borrowing from a paycheck gives you access to what you’ve already earned but haven’t been paid yet, so you can use the money now. Most of the options on our list require you to have been working for an employer with an established history of sending you paychecks or direct deposits. This record of regular pay, along with the typical paycheck amounts, is what tells the lender or paycheck advance service that you are likely to get paid again and have the money to pay them back.
So, let’s take a look at the options.
Payday loans
How do payday loans work? These typically short-term loans come due on your next payday. To get one, you provide a check written for the amount of the loan plus fees with a postdate (later date when you get paid). The lender will then cash the check on that date, recouping the money. Some lenders also use an automatic bank withdrawal to get their funds, so writing a paper check isn’t necessary.
Pros:
- High approval rate with minimal credit checks
- Immediate funds in cash
Cons:
- Very high Annual Percentage Rates (APRs), with fees of up to $45 per $300 borrowed
- Must pay back funds within 2-4 weeks
Cash advances
Consumers typically use two types of cash advances.
The first is Earned Wage Access (EWA), which works through an employer-linked app or website and gives employees access to the wages they’ve already earned but have not yet been paid. Companies that offer this will do it across the board for almost all (if not all) employees, and it’s often advertised as a benefit to help attract new employees to a company.
EWA limits vary, but it may give employees up to 50% of the money they’ve already earned. Then, when the employer issues their next paycheck, the advanced amount is simply taken out. This technology can even track wage earnings in real-time. Employees can work a day and then immediately request a portion of the day’s earnings days or weeks before the employer pays them.
Pros:
- Arranged through the employer, so approval is very likely
- Low or no fees if using traditional money transfer methods; instant funding may come with an additional cost
Cons:
- Not all employers offer it
- Must enroll ahead of time
The second option in this category is the credit card or app-based cash advance that’s not connected to your employer. These both work similarly: using an app or your credit card’s service menu to borrow against a line of credit and have the amount deposited directly into your bank account. If using a credit card account, you can also access cash funds via an ATM. You’ll select the cash advance option and provide a PIN to initiate the transaction and get your money.
Pros:
- Can choose to work with existing bank or lender
- Transfer can be quick, often in minutes
- No employer needed
Cons:
- Higher APRs than using your credit card for purchases
- May come with additional cash advance fees (percentage of total amount)
- Secured cards may not offer it
Personal loans
The last option isn’t really an advance on your paycheck at all but rather a traditional loan that you get from a bank, credit union, or other online lender. It works by having you fill out an application, get approval, and receive your funds in your bank account. Then, you repay the loan in installments, usually a set amount each month for a period of months or years. The APR is factored into the payment amount, so you pay back the original borrowed amount plus interest rates over time.
Pros:
- Much lower APR and could cost less overall than other options
- Monthly set payments can be easier to plan and budget for
- Larger loan amounts can total $1,000 to $5,000 or more, depending on creditworthiness
- Loan repayment builds credit history and can contribute to higher credit scores over time
- No link to paychecks or employer; repay however you wish
Cons:
- Requires an application with a credit check; you may not be guaranteed approval
- It can come with origination fees on top of the APR
- Funds can take days to arrive once approved
Evaluating risks and benefits of short-term borrowing
Short-term borrowing, like getting a paycheck in advance, can help in a pinch when money is tight. For some, it may be the difference between making a rent payment and staying in safe housing. Others may use it to help their pet get much-needed medical care. In some situations, a short-term loan may be what’s needed to get reliable transportation or a wardrobe to start a new job, and the costs far outweigh the benefits of better employment and higher wages.
The benefits clearly exist, which is why cash advances and payday loans are so popular.
However, all borrowing comes with risks, and which risks you’re most comfortable with is something only you can decide.
Common risks that come from short-term borrowing include:
- Paying high interest and fees that could have been used for more beneficial goals
- Getting into a borrowing cycle, where you need to borrow again to repay the first advance
- Relying too much on advances instead of changing money habits or budgeting methods
- Not understanding the circumstances that caused the need to borrow
Also, the fastest way to borrow money may not be the cheapest or the most reasonable. Payday lending, for example, can happen in minutes, but also comes with interest rates ten times what a traditional credit card charges.
When deciding which method you’ll use to get instant cash from a paycheck, consider your overall financial goals and how this one loan will affect next month’s budget and ability to pay bills. If it’s not something you would normally do outside of this extreme instance, it may be worth considering alternatives.
Questions to ask yourself to help measure your financial goals include:
- Do I already have wage access from paychecks through my employer? If so, can I afford to wait a few days for low or no fees?
- If I borrow against this next paycheck, what will I be able to cut out of next month’s budget to make room for the repayment?
- Is my current budget sustainable? Or will I need to borrow again if something goes wrong?
- What steps can I take now to free up $25, $50, or even $100 of cash each paycheck to cover unexpected expenses?
- Is there a more affordable option available to me (employer paycheck advance or line of credit) that I can sign up for now so I have it available for the next time I need it?
If you aren’t sure how to answer the questions or need additional advice, consider help from a financial planner or professional. You don’t have to spend money to get this advice. Many charitable organizations offer services to their communities to help people get on track and stay there through even difficult financial times. You could start by asking your local community college, church, or library about the resources available. Employers may also offer financial literacy programs as part of their benefits package, and it may be offered through the paycheck advance app or tool.
Putting your paycheck to good use
There are no strict rules about whether or not to use paycheck-borrowing services. Some consumers have been able to successfully use them here and there to meet obligations and avoid the stress of late fees or service disconnections.
However, not all options are created equal, with some costing so much in fees and interest that they can cause borrowers to slide backward with their financial goals. If at all possible, look for the option that costs the least and gives you the most flexibility in your budget for repayment. If you’re struggling with expenses now, having some grace to get back on your feet without having to take out additional loans or advances is ideal. You worked hard for your paycheck and deserve to use it for what you value.
