What is a Cash Advance?

Need money fast but don't have cash in your checking account? A cash advance might seem like the perfect solution. But before you jump in, it's important to understand exactly what you're getting into.

Let's break down everything you need to know about cash advances in simple terms.

Understanding cash advances

A cash advance is a way to get money quickly, usually before your next paycheck arrives. Think of it as borrowing against money you already have coming to you. There are different types of cash advances, but they all serve the same basic purpose: giving you access to cash when you need it most.

The main idea is simple. Instead of waiting for payday, you can get some of that money early. You'll typically pay a small fee for this convenience, similar to how you might pay a fee to use an ATM that's not from your bank.

Different types of cash advances

Credit card cash advances

If you have a credit card, you can often get cash from an ATM or bank. However, this option comes with high fees and interest rates that start immediately.

You'll usually pay a fee of 3-5% of the amount you withdraw, plus interest rates that are higher than regular credit card purchases.

Payday advances from your employer

Some employers offer paycheck advances as a benefit. This lets you get part of your earned wages before payday.

This is often the safest option because many employers don't charge fees or interest.

App-based cash advances

Modern apps and financial services now offer cash advances based on your regular income.

Looking for a better way to access your money early? KOHO's cash advance helps you get up to $250 with no interest and.

It's designed to help you avoid expensive alternatives while building better financial habits.

How cash advances work

The application process

Getting a cash advance is usually quick and straightforward:

1. You apply online, through an app, or in person

2. The lender verifies your income (often through bank statements or pay stubs)

3. You choose how much money you want (up to your approved limit)

4. The money is deposited into your bank account

5. The advance plus any fees are automatically paid back on your next payday

Repayment methods

Most cash advance services automatically withdraw the money from your bank account when you get paid. Some services let you pay it back manually, but automatic repayment is more common and helps ensure you don't forget.

When cash advances make sense

Emergency situations

Cash advances can be helpful for true emergencies like:

• Unexpected car repairs that you need to get to work

• Medical bills that can't wait

• Urgent home repairs like a broken water heater

• Emergency travel for family situations

Avoiding bigger fees

Sometimes a cash advance can actually save you money by helping you avoid:

• Overdraft fees from your bank

• Late payment fees on important bills

• Service disconnection fees for utilities

• Bounced check fees

Potential risks and downsides

The debt cycle problem

The biggest risk with cash advances is getting stuck in a cycle where you constantly need them. Here's how it happens:

1. You take a cash advance to cover expenses

2. When payday comes, the advance payment leaves you short again

3. You need another advance to cover the gap

4. The pattern repeats month after month

Fees can add up

While individual fees might seem small, they can add up quickly if you use cash advances frequently. Always calculate the total cost over time, not just the upfront fee.

Not building credit

Most cash advances don't help you build credit history, so they don't improve your long-term financial situation.

Alternatives worth considering

Building an emergency fund

Even saving $5-10 per week can help you build a small emergency fund over time. This reduces your need for cash advances and gives you more financial security.

Asking family or friends

Sometimes borrowing from people you know can be less expensive and more flexible than formal cash advances.

Community resources

Many communities have emergency assistance programs through churches, nonprofits, or government agencies that can help with urgent needs.

Side income

Consider small ways to earn extra money like selling items you don't need, doing odd jobs for neighbors, or participating in the gig economy.

Making smart Decisions About Cash Advances

Questions to ask yourself

Before getting a cash advance, ask:

• Is this expense truly urgent, or can it wait?

• Will I be able to afford my regular expenses after paying this back?

• Am I using cash advances too frequently?

• Are there other options I haven't considered?

How to use them responsibly

If you decide to get a cash advance:

• Only borrow what you absolutely need

• Understand all fees and terms before accepting

• Have a plan for avoiding future advances

• Use the breathing room to address the underlying financial issue

Red flags to watch out for

Unrealistic promises

Be wary of services that promise:

• Guaranteed approval for everyone

• No income verification required

• Unlimited cash advances

• "No strings attached" offers

Hidden fees and terms

Always read the fine print and ask about:

• All fees involved

• What happens if you can't pay back on time

• Whether they report to credit agencies

• How they handle disputes

Building better financial habits

Creating a simple budget

Track your income and expenses for one month to see where your money goes. This helps you identify areas where you might be able to save or plan better for upcoming expenses.

Planning for irregular expenses

Many financial emergencies aren't truly unexpected. Car maintenance, holiday gifts, and seasonal expenses happen regularly. Planning for these can reduce your need for cash advances.

Improving your financial cushion

Work on building financial stability by:

• Setting up automatic savings, even if it's just $10 per month

• Looking for ways to increase your income

• Reducing expenses where possible

• Learning about personal finance through free resources

The bottom line on cash advances

Cash advances can be a useful tool when used occasionally for true emergencies, but they shouldn't become a regular part of your financial routine. The key is understanding exactly what you're agreeing to and having a plan to avoid needing them in the future.

Remember, the goal isn't just to solve today's money problem, but to build a stronger financial foundation that gives you more options and less stress over time.

Cash advances can be part of that journey when used wisely, but they work best as an occasional solution rather than a regular habit.