Featured post

The Cost Breakdown of Cash Advance Loans

Meant for emergencies only, cash advance loans are one way for people to get money in a hurry. Here is one loan scenario: Joe needs $100 to tide him over until his next payday. He writes his cash advance lender a postdated check for $100 plus the loan fee.

Lenders deal with fees in one of two ways. The first way is as an established amount per $1 borrowed—for example, $15 for every $100 borrowed. The second way is as a percentage of the borrowed amount—so, 10 percent of $100, for example. If Joe’s lender uses the first method, Joe’s check comes out to $115. He’ll get instant cash or an automatic deposit into his checking account. On his payday (the date on the postdated check), the cash advance lender cashes his check unless Joe extends the loan. This move, also called rolling over, incurs another fee and prolongs the life of the loan. It also means an additional fee.

Basically, the total cost of a cash advance loan depends on whether roll overs occurred, and if so, how many. Such loans can prove quite costly for many people who don’t exactly realize what a cash advance loan entails. A report in 2006 by the Center for Responsible Lending says that a typical borrower pays $793 in interest on a $325 loan. Why that much? Rollovers. Many borrowers are in continual need of money and start new loans to cover old ones. They can end up owing thousands of dollars.

Cash advance lenders are required by law to lay out the cost of a loan in writing before a customer agrees to it. The information must include the finance charge and annual percentage rate (APR). If a certain lender asks for $17.50 per $100 borrowed, that means an APR of about 640 percent on a 10-day loan. By comparison, credit card rates, while still high, are less.

Let’s go back to the Joe example. Suppose he does choose to roll over his loan after the two weeks are up. He’ll have to pay an additional $15 for another two weeks. If he ends up with three rollovers, he’ll have paid $60 in finance charges to borrow $100.

The rules are slightly different for service members and their dependents. The APR cannot be higher than 36 percent and fees and charges are included in the rate—with some exceptions. However, such loans can still end up costing a lot depending on if there are rollovers and how many.

Alternatives to cash advance loans include budgeting, credit cards, bank or credit union loans and negotiating with other creditors (mortgage company, utilities, etc.) so a cash advance isn’t necessary.

Payday Advance – Modern Way To Borrow or Fast Train To Debt

A payday advance, often called a payday loan, is an advance on future earnings, not a loan. Consumers needing quick cash until payday can get an advance on their next paycheck for emergency expenses. A good credit score isn’t usually necessary to get an advance; a steady job and regular paycheck are essential. People without credit cards or good credit scores often find getting a bank loan difficult; an advance of their paycheck is frequently the only way to get the cash they need quickly.

Since it’s easy to get advances without having good credit, some consumers find it tempting to get loans for superfluous expenses. Advances for emergency expenses can be useful financials tools but should never be used for buying items that could wait until the cash is available.

Examples of useful of when to ask for cash before payday are avoiding a utility shut-off and re-connection fee, avoiding a late fee or to repair a vehicle that is needed to get back and forth to work. In these cases, a cash advance may save an individual money if the advance cost less that a re-connection fee or late fee. Used responsibly, payday advances can help prevent an unexpected expense from turning into a major problem.

A payday advance for extravagant expenses, such as a fancy restaurant meal or a new designer outfit, is a fast track to debt. Loans are very easy to obtain online; in five minutes a qualified worker can apply to get cash wired directly to his or her bank account in less than 24 hours. If someone need the money right away to visit a dentist or buy medicine, the speed and ease of paycheck advances is very helpful. However, impulsive consumers can get into financial trouble by taking out easy advances to buy items when they could have just waited until payday.

As with any online financial product, getting cash from future earnings is convenient for responsible consumers and bad for irresponsible consumers. Used occasionally and paid off in full with the person’s next paycheck, a payday advance is the equivalent of taking a cash advance from a credit card; expensive but necessary sometimes. Anyone who can’t pay the loan in full with their next paycheck will find advances an expensive proposition.

Read the terms and conditions of any offers carefully to avoid any surprises. Knowledgeable, informed borrowers find these loans the modern way to get cash fast without the hassles of borrowing from the bank or the embarrassment of asking friends or family members for a loan. Ignore the fine print, or use the advance for non-emergency purchases, and the advance becomes an expensive debt that’s difficult to pay off.