Give It A Thought Before You Take Cash Advance |
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As cash advance loans come at very high costs, this can, and often does, lead borrowers into a sliding spiral of fast increasing debt. Let's look at the issue from various angles to get a complete picture and s discuss the advantages first. Here's why cash advances may hold enormous appeal for you. You can have bad credit and still qualify for a cash advance loan. Usually, no credit check is conducted. The process is fast--it can take as little as 20 minutes to complete. Some lenders even claim to target approvals in 30 seconds! You can apply in directly to a local cash advance outlet, over the phone or over the Internet. You get funds deposited into your bank account in 24 hours. Compared to some other sources for cash, cash advance loans are discreet--no one else needs to know about it. The transactions are secure-your financial information remains private. If you're faced with an emergency--say, unexpected medical bills--your only concern might be to get money fast. The speed and convenience of a cash advance comes in handy here. So are there any disadvantages? The most obvious one--high costs. A cash advance loan can cost you, say, $15 per two weeks. If you're borrowing only for two weeks, that doesn't sound like much. However, if you calculate the annual percentage rate (APR), you'll see it comes to 391%! If you don't think that's too much, let me ask you this question. If you invested money in the stock market, what would you consider a good annual rate of return? 20%? Maybe 30%? If you made a 20% return (on average) in stocks year after year, you'd be doing very well indeed. And this is for an investment that's generally considered high risk. Now compare that with what the cash advance loan companies charge. You are providing them with a return on their money they won't get in too many other avenues. There is another, less obvious reason why cash advance loans are dangerous. According to some estimates, over 60% of borrowers roll over a cash advance loan. Many take loans repeatedly, too. Let's put in some numbers so that you can clearly see what rollovers imply. Assume you borrow $400 cash advance for two weeks at a cost of $15 per $100 per two weeks. At the end of two weeks, you owe them a total of $460. Now, say you don't repay the $400 at the end of two weeks. Instead, you request a rollover. So you pay them the lending fee of $60 and they agree to roll over the cash advance loan for another two weeks. The total cost of the cash advance loan at the end of 4 weeks may be as follows: Original cash advance loan amount: $400 Fresh lending fees payable: $60 Late fees payable: $60 (assuming late fees apply at the same rate as lending fees) Lending fees already paid: $60 Total: $580 At the end of this period (which is 4 weeks from the day you originally took the cash advance loan), you decide that you don't have $580 available and so request them to roll the loan over for another two weeks. Then this is what it can cost you in total at the end of 6 weeks: Original cash advance loan amount: $400 Fresh lending fees payable: $60 Late fees payable: $60 Lending fees already paid: $120 Late fees already paid: $60 Total: $700 If you continue this process for six months (more specifically, for 24 weeks), this is what it may cost you in total: Original cash advance loan amount: $400 Fresh lending fees payable: $60 Late fees payable: $60 Lending fees already paid: $660 Late fees already paid: $600 Total: $1780 For an original cash advance loan of $400, in a mere 6 months, the cash advance loan company will collect fees and charges of $1380 from you. That's 3.45 times the amount you borrowed. In APR terms that's 749.5%! If over 60% of borrowers roll over their loans, no wonder many cash advance loan companies are extremely profitable. |
