Online Cash Advances
When we talk about cash advances these days, we are typically talking about the online variety. It used to be that these loans were issued only in person. You had to go to a cash store and write out a check for the loan plus fees. The lender would then give you cash money and you could go on your way. On the date agreed to, they would deposit your check and the transaction was complete.
These days, we do everything online, including cash advances or payday loans. The cash advance online is far more convenient which can cause some problems. Sometimes people take out these loans without thinking about whether it is the right thing to do and without thinking about the consequences.
How Online Cash Advances Work
The process is quite simple. A borrower will fill out a loan request or quote form and submit it. They will include contact information, income information and banking numbers, giving the potential lender access to their bank account.
If approved, the lender will deposit money into the borrowers account and then withdraw the loan principle and fees on the predetermined due date.
Fees for cash advances will vary from lender to lender but they are all high when considering the loan length. An example of a fee might be $20 for every $100 borrowed. On the surface, this is not a huge fee but since the loan will probably be due in about 10 days, the APR or Annual Percentage Rate will be well over 400 percent.
Cash Advance Problems
There are a lot of problems with these loans that borrowers must take into account. If it is the only form of credit available, this might still be a viable loan choice but you should realize what you are getting into.
The first big problem is the loan fee. I hit on this a second ago. The APR of the average payday loan is well above 400 percent. Lenders will be quick to tell you that the high fee is justified. This is a bad credit loan and as such, it is risky. Still, a high fee is a high fee so be aware that you are paying a lot for your credit.
The next big problem with this type of loan is the short due date. Most loans will be due to be repaid in just 10 to 14 days. This might be okay with a 100 dollar loan but with the average payday loan being over 300 dollars, it is an issue.
Most borrowers of these loans have no savings and live paycheck to paycheck. If someone is already living check to check, how are they going to be able to pay back a loan for 300 dollars or more? They aren’t and what happens is they are forced to roll the loan over.
When a loan is extended, the borrower will pay just the loan fees and then another set of fees is applied to the loan. This often happens again and again and many a borrower has ended up paying more money in fees than they originally borrowed.
When To Take Out A Cash Advance
With all of the problems associated with these loans, they still can serve a useful purpose. There are times when they can be used successfully.
If a borrower has no other form of credit available, this could be a good loan choice provided they consider a few things.
First, it must be considered whether the money is truly needed. If the loan is for an expense that is not a necessity, it should probably be avoided. Have to pay the rent? The loan might be a good choice. Want to go to a concert? The loan is a bad choice.
Next, the borrower needs to consider whether they have the ability to pay back the loan. Consider your next check and then take the loan payment out. If there is not enough money to pay back the loan, there is a problem. That means that the borrower would either have to roll the loan over or they would have to take out another loan to gt by again. This is a dangerous cycle to start and should be avoided.
Alternatives To A Cash Advance
Before pulling the trigger on one of these loans, it is good to consider your options.
Monthly Installment Loans
Even with less than perfect credit, you may be able to qualify for one of these. Sure, bad credit monthly payment loans will have higher interest and fees but they may be easier to manage than a cash advance. The payments will generally be lower since the loan term is longer. Use caution though because although the interest may be lower, you will be paying it for a longer time. This could result in higher overall loan fees.
If you just need 100 dollars and have a job compatible with the app, this could be an option. To qualify, you need to link your bank account and enter your job. The app tracks you when you are at work to show that you are “earnin”. You can then borrow against this money. The system is pretty restrictive but if you qualify for it, the result is a nice free loan.
No creditor really wants you to get behind. It is expensive to put people in collections or to pay staff to call and harass you. If you know that you are going to be short, it might be worth calling some of these creditors. Perhaps you can get a bill deferred or spit up into multiple payments. A smart creditor would rather take something than nothing and even a landlord might be willing to negotiate rent if it allows them to keep an otherwise good tenant.
Friends and Family
Not always the easiest solution but one worth considering. If you just need a little money, almost everyone knows someone who might be able to spot them a 200 dollar loan. Just be sure to get everything in writing for yours and their protection.