Cash Advance Loan May Land You In Trouble |
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They keep on changing their faces. Sometimes it's Quick Cash, Quick Loan, Payday Loans, or sometimes just Cash
Advance. You can see them everywhere, especially in the poorer parts of
town. Cash advance is the new development in predatory lending business that still is not facing any difficulty, despite strict regulation in
most states. They don't charge any interest, but they do charge "fees". It may sound like the ultimate in convenience. Need some quick cash? Say cash advance: stop by and in just five minutes you can be out the door with $100, $500 even $1000 dollars. But what is the true cost of this convenience? How It Works In general, a cash advance or payday/paycheck loan is secured by a personal check. Some companies want your bank account or credit card information in addition to or instead of a check. You write a check to be cashed or agree to have an amount withdrawn from your bank account sometime in the future; usually 14 days. Once you complete the agreement/contract of cash advance you are given an amount that is less than what you have agreed to pay. The difference is the fee for the loan service. Why It Works Why is the cash advance company lending you money like this? Answer is simple. Because loaning out money for these fees really amounts to a huge profit at your expense. For example, say you borrow $200 and the lender charges a fee $15 for each $100. Within 14 days you will have to pay $230 for borrowing $200. Now if the $200 keeps you from paying a $100 late fee or penalty, it's probably worth it. But if you just want the money today, you are paying a high price. You are paying 15% interest for a 14-day cash advance loan. That amounts to 3785% compounded interest yearly! No wonder lenders are happy to loan you this money. If they give you $100 cash advance loan and you pay them back with an extra $15 in two weeks and they loan out the $100 again along with the $15 extra you paid, and they keep doing this for one year, they will turn their $100 into $3785 by the end of the year! What To Watch Out For - Early repayment fees. Pay off your cash advance early and they sock you with another fee. - Late repayment fees. You may have to pay the entire fee again if you miss the payment date. - Membership fees. Some cash advance companies charge you to become their customer. - Giving cash advance lenders access to directly debit your bank account. It's better to hand over your wallet; it's quicker. - Fine print (as in all contracts). Know what you are signing or don't sign it. - Bounced check or debit fees. Make sure you have money in your bank account or you get to pay your bank a fee as well. - Collateral requirements such as a car title. Miss your payment and you may be missing your car - permanently. There Is A Better Way If credit cards, store accounts, installment payments are eating up your income quickly, it may be time to visit a non-profit credit counseling service or create a debt reduction plan for yourself instead of getting cash advance. You may need to spend a few minutes each week and write down your expenses. Then categorize and total them to see where your money is going. Then record your income for the same time period and make sure that you are not spending more than you make. Everyone gets behind occasionally. But you need enough room in your budget to accommodate the budget busters and surprise expenses that may come up and lead you to cash advance. It may mean cutting back on cable, magazine subscriptions or eating out. |
