Cash Advance - Good & BadA cash advance is a type of short term consumer loan that is made based on it getting repaid from your next paycheck. Most of us have experienced a sudden financial setback at one point or another so it would be a good idea to be familiar with what a cash advance is and how they work. If you are aware of both the positive and negative aspects of obtaining a cash advance, you will be better able to make an informed decision if the time comes that you should feel a cash advance is needed.
Certain governmental agencies, such as the CFA and the FTC, have expressed doubt over the usefulness of cash advance lending. The agencies say cash advance loans are too expensive and too easy to obtain. Calling the cash advance industry "predatory lenders" and "legal loan sharking," the agencies are concerned that they are contributing to debt for lower income Americans. They allege that often people are unable to repay their cash advance when due so accumulate more debt as fees add to the total.
A cash advance is a very expensive short term loan option, even more costly than a credit card advance can be. Consumers do not always understand how to calculate annual percentage rate (APR) and despite being required to reveal this information by the Truth in Lending Act, many lenders fail to provide this information.
Often a borrower will believe that because he owes $20 for each $100 of the borrowed amount, then he is paying 20% APR but that is far from the case. If the $20 was charged per $100 once a year then that would be 20% APR but cash advance fees are typically every two weeks which will make the actual APR 26 times that amount! Lenders offering a cash advance generally have an APR ranging from 250% up to 650%, making it particularly difficult to pay off. Obviously, if you cannot pay it when due and must renew the cash advance, this quickly becomes an extremely expensive way to borrow.
Although there are some negatives about this type of loan, people are choosing to get a cash advance every day and the numbers are growing by leaps and bounds. A cash advance is one of the easiest loans to get with only minimal requirements and may be your only option if you have bad credit. The cost of the cash advance would be much less expensive than bouncing checks that you do not have the funds to cover. When you experience a sudden financial crisis, such as a car repair or unexpected bill, the cash advance can be an easy and convenient way to take care of the situation.
The thing that you need to remember is that cash advance loans are not meant to be a long term solution for your financial management. A cash advance was designed to help you in a time of sudden financial need only. That is why lenders will often limit the total amount you can be loaned to between $1,500 and $2,500 so that you will not get in too deep. The average cash advance is only between $200 and $500 and these smaller amounts are easier for consumers to manage. As a borrower, just remember not to take a cash advance knowing that you can't repay it and be sure to pay all loans when due, This way you will avoid piling up a substantial debt.
As you can see, while there are some drawbacks to obtaining a cash advance there are times when you may need the short term assistance. Since they are so expensive, it is better to explore all other options before considering a cash advance, like a credit card advance or borrowing from a family member. To minimize the expense of a cash advance when you need one, be sure to choose a lender with a good reputation who is upfront with you about the fees and APR. Always have a plan to pay back the cash advance in a timely manner and remember that a cash advance is not meant to be a long term financial management tool.