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Cash Advance Loans: Quick Cash or a High Interest Debt?

Cash advance loans (also known as payday loans) are relatively easy to obtain. These types of loans do not require a credit check, and the borrower receives the cash immediately upon providing proof of employment, showing a bank statement, and writing a post-dated check to the lender.

These types of loans are small amounts that the borrower can pay back when he receives his next paycheck. Therefore, most cash advance loans do not exceed a few hundred dollars.

The Price Tag of Easy Money

While cash advance loans are quick and convenient, they are not cheap. Expect to pay 15 to 30 percent more than the loan amount in order to use this service. For example, if you need to borrow $100, you could end up paying $130 total if you pay in full when you receive your next paycheck. Failure to pay the loan on time will cost even more.

Payday loans are a tremendous bargain – for the lender. They are essentially buying $130 for $100. Since selling hard-earned money at a discount is a guaranteed way to go bankrupt, cash advance loans should only be used as a last resort.

The Cycle of Debt

Cash advance loans often compound the financial woes of people struggling to manage their money. If someone takes a cash advance loan because he has spent all his available cash, he will receive immediate cash, but it will become harder to pay his bills over his next pay period. If he rolls his loan over to the next payday, he will rack up even more loan fees. If he pays his loan off in full, he will have less money to make it through that pay period, thus increasing his likelihood for seeking yet another payday loan. Until he identifies the root cause of his situation and develops a plan to get his finances under control, he will only create more trouble for himself.

The old adage “an ounce of prevention is worth a pound of cure” certainly applies to money. Taking steps to prevent the need for a cash advance loan can save a great deal of money in the long run. One of the best ways to protect yourself from unforeseen circumstances is to save up an emergency fund.

If you have already taken a cash advance loan or you have no other choice but to do so, develop a plan for paying it off and getting back on your feet. You may have to sell an item of value or drastically cut expenses for the next month or so, but it is vital that you pay off the loan quickly.

Payday loans – a good or bad way to borrow?

Payday loans can help borrowers manage emergency situations without arranging a loan through traditional banks or financial institutions. Because payday loans and cash advances are intended for a short period only, failure to pay the debt as agreed can be costly. Before borrowing from a short term lender, truthfully evaluate how much of the next paycheck can be used to settle the debt. Exhaust other personal resources, including family or friends, before seeking a short term loan or cash advance. When approved for a payday loan, know that the costs associated with this form of financing are higher than traditional sources. Consider the pros and cons of payday loans:

Pros: why payday loans are a good way to borrow
Many people in today’s economy experience temporary financial shortfalls between paychecks. Underemployment, sometimes working several part-time jobs to make up for a better-paying full-time job, can make balancing incoming and outgoing funds a challenge for individuals or families. When a true financial emergency happens, payday loans or cash advances can save the day. Sometimes, just $100 until payday helps the family buy groceries or attend to a sick relative.

Payday loans and short term cash advances offer these advantages:

–online loan application: many payday lenders offer a convenient, streamlined application. Ask the lender about submitting an online application or print/fax an application to the lender’s location
–pool of lenders or fixed lender capital base
–no credit check to obtain approval: the borrower’s job and monthly income are used to confirm or deny the loan application
–fast availability: many lenders make funds available in hours or within one business day
–debit card or direct deposit: borrowers can easily access funds for any purpose

Cons: why payday loans are not a good way to borrow

–higher costs associated (interest rate, APR, or fees) with borrowing money over a short period, loan extensions repayment dates may add new charges to the loan
–over-extended, over-burdened borrowers may not have the resources to pay short term payday loans or cash advances according to the lender’s disclosure and loan agreements
–lack of financial education: some borrowers use a new payday loan to repay an existing one
–consumer’s poor credit history prevents him or her from accessing cheaper lines of credit

Payday loans or short term cash advances can benefit borrowers when he or she understands the loan terms and conditions. By repaying the loan on time, the borrower establishes a good financial resources for the future.

But he or she must communicate with the lender if repayment extension is necessary. Defaulting on a payday loan or cash advance will severely impact the borrower’s ability to borrow when another cash crunch occurs. A payday loan can add to the already financially stressed customer without careful consideration of these factors.

Payday Advances – A Solution To Money Problems or The Cause?

When faced with money problems, payday loans might seem to be the only answer. You cannot make it through the month, so you apply for a cash advance. You will have the money in your account before the day is complete, and you can have some financial relief.

However, payday loans can lead to serious financial problems. The interest rate is huge, so you will end up paying much more than the original loan. The loan will need to be paid when you receive your next paycheck. Therefore, if you do not have the money, you will be charged significant fees. After paying the loan back, you probably still will not have enough money to make in to the end of the month, so you apply for another loan. You then will get in an endless cycle of debt. If you are having trouble having enough money to pay your expenses, look for other options.

Having financial problems can cause a significant amount of stress and anxiety. You have bills that need to be paid, and emergency expenses can arise without warning. You turn on the television and see an advertisement for payday loans. They make it look so simple, and a loan can make your money troubles disappear. This is a huge misconception.

In reality, payday loans will get you into more debt, and it will be hard to recover. You will be paying a huge amount in interest, and you will also be paying other fees that the lender incorporates into the agreement. In addition, some payday loan lenders are not legitimate. They will deceive you and take advantage of the situation. Therefore, payday loans are not the answer to your financial worries.

Emergency expenses can strike without warning. Your car needs repaired or you have medical bills to pay. You panic because you do not have enough money in the bank account. You cannot apply for a traditional loan because your credit score is too low. Therefore, you need a cash advance fast. You will not be subject to a credit check, and no paperwork is required.

Unfortunately, payday loans can be very costly, and you could wind up in more debt. The interest rate can be more than 300 percent of the original loan, and the lender might charge you additional fees as well. With those charges, you might not have the money to pay the loan back on time, so your credit sinks even lower, and you have lenders calling you at all hours of the day. Try to find another way to get the money. Payday loans are not the solution.