Need Instant Cash? Avoid A Cash Advance Spiral |
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Cash advance loans,
irrespective of what they are called, basically more or less work the same way. The cash advance loans sound like an easy way to get the money to pay off bills. But the truth is that are not what they seem to be. They can turn out to be too expensive and create even more problems for the borrowers instead of simplifying things for them. In finance parlance, cash advance are commonly known by different names like cash advances, check advance loans or post-dated check loans. Basically, these loans work in a very simple way. For instance, a person needs a particular amount of money to pay his bills but because of certain constraints, he can't wait until his next payday. He therefore takes a copy of his LES (Local Employment Service) to a cash advance loan company and gives them a post-dated check for the loan that he needs plus the fee he will have to pay for the services. The cash advance company gives him the loan that he needs and holds the check until the next payday, which is usually two weeks. After the stipulated 14 days, the borrower will have to return and pay the full amount of the cash advance loan and the fees that he paid, $130 in cash, to get the previously given check back. This way, the borrower will pay a relatively higher amount of money for the loan he required for just two weeks. Cash advance are not really recommended and are considered dangerous for two main reasons. First, they usually involve extremely high interest rates. For instance, the interest charged on a loan of $100 would be approximately $30, which would come out to be about an annual percentage rate (APR) of 780%. To put this into perspective, the APR on most credit cards is 12 to 20% and most car loans are below 15%. The second reason for considering cash advance loans not a very feasible option is that they can lead to an endless and vicious cycle of debt for borrowers. In most cases, borrowers find it difficult to pay back the cash advance loan at the end of two weeks. For example, in the case of a $100 cash advance loan, the company advises the customers to give them $30 and gives them two more weeks to pay. It seems that they are trying to make things easy for their clients by giving them extra time. But actually, they are luring him into the never-ending cycle of debt. What they do not tell the customers is that after the second two weeks, he will owe another $30 service fee. After one month, it will have cost him $60 for the $100 loan. Before long the borrower would have paid more in fees than the amount of the original loan. In many states, including Texas, cash advance loans are legal. Texas law sets a limit on how much interest can be charged on cash advance. If the company is licensed with the state, it can charge up to about 150% APR. Unlicensed companies can only charge 100% APR. Companies can avoid these limits if they are a part of a national bank based in another state. Irrespective of what they are called, federal law requires cash advance loan companies to tell the consumer about the costs of the loan. These costs must be stated both as a dollar finance charge ($30 per $100 borrowed) and as an annual percentage rate (780% APR). This allows the customers to compare the interest rates on cash advance to other options, such as credit card cash advances. Also, companies must display their licenses allowing them to provide cash advance in Texas. However, cash advance loans are certainly not a pleasant and comfortable option for getting quick cash. The incredibly high interest rates that are associated with typical cash advance loans make them a not so viable option. Most people seeking cash advance loans do not pay much attention to the interest rate associated with these types of loans. As a result of this, borrowers find themselves buried under a huge pile of debt associated with the initial cash advance in a very short span of time. And in many other instances, if a person gets a cash advance or a payday loan on one occasion, her or she will most likely be back for another loan and another and so on and so forth. People get deep in debt when they take out a loan against their paycheck. They write a postdated check in exchange for money. When they get their next pay, they repay the loan. That is why these loans are called payday loans. Cash advance loans generally come with very high interest rates. Borrowers who can't repay the money are charged additional fees for an extension, which pushes them even deeper in debt. Borrowers can continue to pay fees to extend the loan's due date indefinitely, only to find they are getting deeper in debt because of the steep interest payments and fees associated with the cash advance loans. |
