Costs of a Cash Advance
One concern many people have about cash advance loans is the amount of the fee for the loan. These fees are set by the lenders according to local laws and regulations. In addition, many cash advance loan companies are funded by lenders in other states, so are controlled by regulations in the other states, as well. Customers who are borrowing these cash advances need to find out from the lender exactly what the fees for their particular loan will be.
Normally, these fees are presented to the customer as a flat fee, but they cover various handling charges and interest. For instance, the fee for a two-week $100 loan may be $17.50. The customer would immediately receive $100 cash, but would need to write a post-dated check for $117.50 to pay back the loan. If that fee represented the interest for two weeks, and if the fee were calculated out to a full year’s interest on that amount at that rate, the borrower would be paying an APR of 911%.
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An APR, or Annual Percentage Rate, is the actual cost charged for the loan. It is figured using the actual interest rate, the loan amount, any added costs (like handling fees), and the terms of the loan, including how long the borrower has until the money must be paid back. An APR is set by the lender according to a number of factors such as how much risk is involved and whether or not there is collateral for the loan.
A cash advance short-term loan is considered to be a high-risk loan for the lender. There is a trade-off between being able to get a high interest, instant loan without a thorough background check or taking the time to get a lower interest loan with a thorough credit history examination.
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Only the borrower knows if the interest charged for the payday advance is worth the ability to get immediate cash. The borrower needs to be aware that the rates for this kind of loan are high, and that this option should only be used occasionally and for the short term. Additionally, cash advance loans should only be for the actual amount that is needed at the time and that can be paid back at the end of the term.
If it will be difficult to pay the loan back in the allotted time, or if a larger amount is needed than can be paid back out of one paycheck, the borrower may need to investigate other options for short-term cash relief. Many banks and credit unions will write an unsecured loan for an account holder. It may also be possible to borrow from a friend or family member or to ask an employer for an actual advance on the next paycheck. Some credit cards offer the option of cash advances, too. While the interest rate on these types of transactions may be high, it is not as high as for a payday loan and can be paid off over a longer period of time.
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* Cash-Advance-USA.org provides information and research on cash advances/payday loans. We are not a payday lender or broker, nor are we necessarily affiliated with the companies profiled on this site. Not all products and services are available in each state.
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