Check Advance 101: Everything You Need to Know

Chang Fu
December 10, 2019

A check advance is a small short-term unsecured loan usually repaid on the borrower’s next payday. Check advance loan, payday loan, cash advance, and short-term loan are common terms that reference the same product. The term “check advance” came about because a borrower is essentially getting an early cash advance on his or her next paycheck with the obligation to repay this advance once the borrower is paid.

With the advancement of technology, check advances and payday loans are getting friendlier and easier to obtain. A borrower can access check advances online or on their mobile phone. In addition, instead of just looking at a pay stub, some lenders are underwriting loans based on a diverse set of criteria that may be easier to obtain or a better indication of borrower repayment ability.

For example, Possible is a popular alternative to traditional check advances and payday loans. Via the mobile app, you can get up to $500 in minutes even with bad credit or no credit. Rather than repaying the full amount plus interest on your next payday, you have multiple pay periods to repay the loan. As you repay, Possible reports to credit bureaus to help build credit history. In short, with Possible, fees are cheaper, the process is simpler, and the repayment is much friendlier than traditional check advances, helping you improve your long-term financial health.

Check advances vs Payday advance apps vs Check cashing

Check advances, also called a payday loan, are often confused with payday advance apps and check cashing. Even though all of these products allow you to accomplish a similar thing by giving you access to the money you need, there are significant differences.

Check advance. A check advance, like a cash advance or payday loan, is a small dollar short-term borrowing usually repaid on your next payday. Traditionally, a lender looks at your proof of income, usually a paystub, along with your state identification to determine whether they will lend to you. The amount borrowed is due on your next payday, or for certain payday loan products or alternatives, can be due as far out as 3 months out.

Payday advance apps. These apps, including Earnin, Brigit, and Dave advance you money before your payday. These payday advance apps do not follow state or federal regulations around lending and do not consider themselves loans. In many cases, these apps will track your location to make sure you are going to work. If you took an advance, the apps will then collect the advance on your payday plus tips and/or any other charges. Because these apps are not considered “loans” in the traditional space, they make money for their service in a variety of ways including subscription fees, tips, and membership charges. And because they are not considered loans, they do not report on-time or missed payments to the credit bureaus.

Check cashing. Check cashing is simply the service of being able to cash a check you’ve received. Most banks will cash your personal check for free if you have a checking and savings account with the bank – however, the funds are not available for 1-2 business days. Consequently, alternatives financial companies such as payday lenders and even Walmart have a service to cash your check for a small fee. The money from your check is immediately available in cash or on your debit card.

Costs of a Check Advance or Payday Loan

A payday lender typically charges fees as  a percentage of the dollar amount borrowed. Fees can range from $10 to $30 per $100 borrowed, depending on state regulations. The most common fee is $15 per $100 borrowed. Assuming a 2 week check advance, $15 per $100 borrowed converts to about a 400% annual percentage rate (APR). Depending on specific loan terms and fees, some payday lenders charge up to a 700% APR! In contrast, a Possible loan has an APR of 150-200% depending on state and repayment term. Loans from Possible are repaid over a couple months in installments, reducing the repayment burden o n borrowers. By repaying installments, borrowers can also build credit history and improve their financial health.                   

Many states cap the maximum rate a lender can charge for a check advance, cash advance or payday loan or they may outlaw such products altogether. Be sure to check the maximum APRs for your state. For example, New Mexico has a maximum APR of 175% and New York does not allow check advance loans.

There could be indirect costs to a check advance such as non-sufficient funds (NSF) fees, returned check fees, or debit card fees – all considered overdraft fees. For example, if you get a check advance deposited directly on your debit card, many payday lenders will charge an additional fee such as $3 to get you the money so quickly. In contrast, Possible does not charge any debit card transfer fees. NSF fees can also become an issue if you do not have enough money in your bank account to repay your loan. To reduce these fees, make sure you always have enough in your bank account or consider an overdraft loan or line of credit.

How to get a check advance

Same as a payday loan or cash advance, to qualify for a check advance, most lenders will require:

  1. A state-issued ID
  2. An active bank account
  3. Proof of income, usually a pay stub

To apply for a loan with Possible, we require at least:

  1. A state-issued ID
  2. An active online bank account
  3. A smartphone

Whether online, on your phone, or in-person, you will input information and submit an application for a loan. The time this takes can vary by lender from 1 minute with Possible to as long as 15-20 minutes at payday lending stores. If you are at a payday lending store with a storefront, you may also be asked to write a post-dated check for the payday lender to cash if you fail to repay the loan on time.

Once the loan application is received, you may be approved instantly, usually called an “instant decision,” or it may take a few minutes up to multiple days. This varies significantly by lender and is based on the underwriting criteria the lender is using to determine whether you will be approved for your check advance or payday loan.

Once approved, you can accept your loan by agreeing to and signing your loan documents. Be sure to review all documentation along with terms and fees before getting your check advance loan. After you accept your loan, you should receive your loan disbursement in cash, on your debit card, or in your active checking account.

A check advance in minutes that builds credit.

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Will lenders check my credit?

Yes, lenders, may check your credit history but not always in the way you expect. For example, many check advance lenders will check alternative credit sources such as Clarity Services rather than bureaus you are more familiar with such as Experian, TransUnion, and Equifax. Although these credit checks do not affect your FICO credit score, they may influence your ability to get credit from banks and other financial institutions such as payday lenders.

If you have no credit report or bad credit, no credit check loans may be the best option for you. In addition, many customers that have gotten a loan with Possible have no credit history or bad credit. We use alternative credit sources such as Clarity to reduce fraud and we believe in our customers. We want to make positive financial health possible for you, our customer, and we want to approve as many loans as we can. If you have any questions about our process, contact our customer service at [email protected]

Types of check advances and alternatives

Brick and mortar payday loan stores. Most cities where payday lending is legal under state laws have payday loan stores where you can get a loan. Remember to bring your ID and paystub when you go. You can get payday loans or other short-term loans from these stores.

Online check advances and payday loans. Most payday lenders have an online application where you can apply, get approved, and receive cash in your bank account. The online application process can be simpler and faster than getting a loan in person. However, be careful about scams and read reviews and research into the online payday lender you are using. Loan amounts can vary from $100 up to $1,000.

Online installment loans. These types of loans are repaid over multiple installments. Mortgage and personal loans are a type of installment loan. However, some payday lenders are abusing the installment loan structure so be careful which installment loan products you use. Possible loans are structured as a friendlier, cheaper, and more flexible installment loan for our borrowers.

Car title loans. Title loans are secured loans, in this case secured by a car title, usually repaid after a short time period. If you fail to pay back your loan and since the loan collateral is your car, the lender can seize the collateral, your car. These loans can be expensive and dangerous so they should be used with care.

Payday advance apps. As mentioned earlier, payday advance apps allow you to access the money you earn through your job early in the form of an advance. Once your payday arrives, you’ll need to repay the advance back. Since it’s not a loan, you won’t build credit history and there is no interest. However, there can be membership fees, transaction fees, and tips. Just keep in mind that these fees (like a monthly maintenance fee) add up and can be high when converted into an APR.

Payday alternative loans (PAL). These loans are offered through participating credit unions. PALs have lower interest than traditional payday loans, although the interest may still be higher than personal loans and student loans. Repayment is usually from 1 to 6 months and repayment history is reported to credit bureaus. A PAL offer is contingent on being a member of a participating credit union.

Credit cards. If you have the minimum credit score, usually 600 or 650, for a credit card, this may be a good option for you. You’ll need at least OK credit history, your credit utilization ratio can’t be too high, and there may be other factors. APRs can range but usually top out at 36%. You may not qualify for a traditional credit card so secured credit cards may also be an option. A secured credit card is one where you have to deposit cash as collateral to use the credit card. Your card account balance usually cannot exceed the cash collateral. This limits the credit card issuer’s risk to you not paying your credit card. However, you may not have money to secure your credit card in the first place. 

Cash from family or friends. Asking for money from close relatives or friends, although not ideal, can still be better than taking on too much expensive debt. If you’re looking to build credit history, borrowing money from family or friends will not build credit history. Evaluate your personal financial situation and determine what’s best for you.

Benefits and Risks of a Check Advance or Payday Loan

Benefits

  • If you get the borrowed money in cash or on your debit card, you can receive funds in a few minutes. If you choose to receive funds in your bank account, it can take 1-2 business days via ACH (automatic clearing house).
  • You may get approved even with bad credit or no credit history. Because payday lenders do not tend to look at FICO scores, you will have a better chance of getting approved, especially if you failed to pay back credit cards or went through bankruptcy.
  • Lenders are fully transparent on interest, fees, and other charges. You’ll know exactly how much you’re paying to get the loan as payday lenders follow state and federal regulations as well as the Truth in Lending Act (TILA). There is no confusion around membership fees, subscriptions, and/or tips.

Risks

  • Know how much you’re paying in interest and fees when you borrow money. Annual percentage rates (APRs) for interest on check advances, title loans, cash advance loans, and payday loans are higher than other borrowing options such as personal loans, mortgages, student loans, car loans, and credit cards. Depending on your credit score and your financial situation, a check advance or payday loan may not be the right product for you.
  • Only take out a check advance if you fully plan on repaying the loan back. Defaulting on a payday loan can result in unintended consequences and undue stress. The financial solutions you have may be limited. In addition, some lenders have more charges and fees for “rolling over” your current loan. Rolling over a check advance can cause interest to stack up and put you in a vicious debt cycle — that’s why some states have laws banning or limiting rollovers.

When to get a check advance

A check advance or payday loan can be useful in the right situation, especially for those living paycheck to paycheck. Because you don’t need great credit and can get money quickly, it can be useful in sticky or stressful situations where you need emergency cash. Furthermore, with a loan from Possible, there are lower fees, more flexibility around repayment, and ability to build credit history. A Possible customer borrow loans to help with:

  1. Emergency expenses and unexpected expenses such as car repair and medical bills
  2. Normal expenses such as childcare, rent, utilities, etc. when income is tight
  3. Temporary protection for bank overdrafts and other bank expenses
  4. Credit-building or building credit
  5. And many other cases

To apply for a loan with Possible, download our app on the iTunes App Store or on the Google Play Store.

Chang Fu

Chang is an avid writer, among other things, at Possible. He grew up loving reading and writing, creating his own poems and even a book he's now hidden in an old closet, unpublished. His financial experience at a large bank along with his passion for technology to help underserved communities inspires him to write for Possible.

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