Cash advances and check cashing transactions: what’s worse?

If you only need cash and cash, should you make a high-yield advance on your credit card or cash a check? Today, most transactions are done electronically. People can easily exchange money via their bank accounts, with applications on their phones or even via social networks!

But sometimes electronic funds just don’t do it. You need money. You may be stuck in a rural gas station. Maybe you buy kebab in that old school hole in the wall that doesn’t take cards. Maybe you need $ 100 to be able to roll it up on your bed like a classy kid.

Whatever the reason, the need for cash when you don’t have it on hand can make it very difficult. If your bank has an ATM nearby, this is the best option, but your other options are not as good. You may be stuck with a credit card in advance or go to a check-cashing store.

What is an advance?

When you buy something with your credit card, no physical money changes hands, does it? The amount you paid is simply added to your card balance. You basically borrow money from your credit card company to make a purchase. With an advance, you also borrow money from your credit card company. The only difference is that the money you borrow is given to you as part of this soft and sweet paper.

However, prepaying your card differs from your regular credit card charges in two ways.

First, most credit cards have a separate annual cash advance percentage (APR). And the annual percentage of cash advances is almost always higher. You could have an annual interest rate of 15% for your normal credit card transactions, but an annual interest rate of 25% for cash advances!

 

Second, regular credit card transactions have a 30-day grace period before interest accrues. If you pay the card during this period, you will not be charged any interest! Cash advances, however, do not have such a grace period. Interest is charged on the amount withdrawn at the time of the transaction.

What is a check cashing transaction?

A check cashing store is a store where your check is cashed for you. They often also offer other services such as payday loans, bank transfers, bill payments, transit passports, currency exchange, and postal services.

These stores take your check and charge you a one-time fee for collection. For example, suppose you bring a check for $ 500 and you get a 2% fee. That said, it would cost you $10 and you would get $490 in cash.

The cost of cashing your check varies from business to business but is often at least a few percent. For example, Illinois limits check-cashing fees to 2.25% for checks over $ 100.Check cashing transactions are generally intended for people who do not have checks or traditional bank accounts. These are people who receive a physical paycheck and have to convert it to cash in order to actually use it. (You can also use the store to transfer their bill payments.)

According to a 2015 Federal Deposit Insurance Corporation (FDIC) survey, there are more than 9 million non-bank households in the United States. The United States, However, this is a risky financial area where traditional banks also come into play.

So what is it? advance payment or a check-cashing operation?

Regular readers of the Financial Sense blog will probably be able to guess our answer here: it depends. But the reason we say this so often is that it’s almost always true. There are very few fixed financial rules that apply to each person and situation. The circumstances determine which option is best for you.

However, we will win here to check the money changers for one simple reason: these one-time charges are preferable to a high APR.