Is It Ever a Good Idea to Take Out a Salary Advance Loan?

A salary advance is a way to get your paycheck faster, without having to fall prey to payday loans and other forms of predatory borrowing. Their interest rates can be higher than other personal loans, but for those confronting an emergency, they can be a quick way to finance a surprise expense. Let's take a peek at these loans and see when they're a good idea -- and when you're better off avoiding them.

What is a salary advance?

A salary advance is a loan that fronts you a portion of your paycheck before the day you're normally paid. They can be broken down into two main groups: those offered by banks and credit unions (small-dollar loans) and those offered as a benefit by employers (salary advances).

• Small-dollar loans: These are bank loans that have interest rates and fees. The amounts are typically small -- hence the name -- and the loan term will be short, usually a few months.
• Employer-sponsored salary advances: These are offered by employers, usually as an employee benefit. Your employer will give you a percentage of your next paycheck today (say, 80%), and it'll deduct what you borrow when your paycheck is actually cut. Some employers don't charge interest, while others will charge only fees to cover the extra accounting work.

When is it a good idea to take out a salary advance?

Getting a personal loan with your paycheck attached as collateral may seem like a risky idea. But in some circumstances, it's the only financial tool you have. Here are some situations that justify taking out a salary advance:

• You're facing health issues. When it comes to your health, time is money. Getting a salary advance to cover hospital expenses, especially when you don't have a credit card, might mean seeing a health expert faster.
• You have a loved one in a medical emergency. This is especially important if the loved one lives far and you need money to travel. Normally, I wouldn't recommend taking out a loan for traveling. But in this case, seeing a loved one in a medical emergency is more important than any interest or fees you might pay on a salary advance.
• You need to fix your car. If not having a car would cost you money -- such as taking unpaid time off -- then fixing the car is essential. In this case, it would be better to get a salary advance and get the car back on the road than wait.
• Your home has structural damage. You don't want to live in a home that puts your health in danger. For homes that need major structural repairs, a salary advance can accelerate the timeline.

Should you take out a salary advance?

A salary advance can help you in situations that require cash now. If you don't have other financing options, such as a credit card, a salary advance can help you take action when time is of the essence.

That said, I wouldn't depend on salary advances for nonessential spending, such as funding a vacation, wedding, or birthday party. I would also be wary of taking a salary advance when doing so would jeopardize paying bills, credit cards, and your daily necessities. For example, it doesn't make sense to use a salary advance to cover car repairs, if by doing so you can't pay for groceries for the next three weeks.

If you have a decent credit score, I recommend using a 0% APR card for most urgent expenses. These cards don't charge interest for unpaid balances for a specified period of time, usually six to 18 months. They can help you avoid getting salary advances, while also saving money on interest and fees.