Understanding Cash Advance Lending

Cash Advance Now offer a “quick fix” for consumers facing financial emergencies, but for some people, these easy loans lead to years of misery and debt.

In 1998, Jean, took out her first cash advance loan. She was short on cash and needed to pay her rent. She never imagined that her quick and easy loan would lock her into an 8-year cycle of debt.

At the end of the first loan term, Jean couldn’t afford to repay her loan, so she took out a new one. After that, the pattern continued. Every few weeks, Jean went to different cash advance lenders to get new loans to cover her existing loans.

Jean’s lenders began to demand payment and leave threatening messages. Feeling trapped, she had trouble sleeping at night. She had no idea how to end her dependence on cash advance loans.

“It’s horrible,” she says, “There really is no way out of it.”

Understanding Cash Advance Loans

Cash advance loans are short-term loans that offer “fast, easy cash.” They are also known as payday loans, check advance loans, post-dated check loans and deferred deposit check loans. The loan term generally runs until the borrower’s next paycheck. Most cash advance loans last 14 days, but they can last up to six months.

Taking out a cash advance loan is a fairly simple process. A borrower writes a check to the lender for the amount of the loan plus a flat fee. Lenders usually charge about $15 for every increment of $100, and consumers can borrow up to $800 per loan. The lender gives cash to the borrower and agrees to hold the check until the borrower’s next payday, when the loan is due.

Cash advance loans are also available on the Internet. However, Internet cash advance loans may be more expensive than loans obtained at a store. These sites often have poor security protection and do not list an address or phone number, so borrowers cannot contact their lenders. Plus, many sites operate outside your state and do not follow your state law.

Risks Of Cash Advance Loans

The major risk of using these costly loans is becoming dependent on them. When Jean got caught in a cash advance loan cycle, she ended up owing $2,000 in interest alone for one $200 loan.

Her lenders called her constantly, came to her house and even harassed her coworkers. Other Payday consumers have had similar problems with cash advance loans, including :-

• Paying high interest and APR costs :-Annual Percentage Rate (APR) is the yearly cost of the loan. A typical 14-day, $500 loan with a $75 fee has an APR of 391 percent, whereas the APR for credit card purchases is often around 15 percent.
• Endless cycles of debt :-When borrowers cannot repay their loans, they are forced to take out new loans (and pay new fees) every few weeks.
• Threatening collections tactics :-Some lenders or collections agents call multiple times a day, send numerous e-mails, threaten arrest or jail time and make home visits to borrowers who owe money.
• Calls to relatives and coworkers :-Some payday lenders harass a borrower’s family members, co-workers and employers until they receive payment.
• Falling behind on other payments :-The high interest costs of cash advance loans can cause consumers to miss mortgage payments, car payments and other bills.
• Automatic loan renewals :-Many Internet sites automatically renew cash advance loans, even though most states’ law prohibits it. If you want to repay your loan in full (and stop paying interest), usually you must make special arrangements with the lender.
• Security threats :-The lack of security protection for many Internet sites puts consumers’ personal information at risk.
• Unauthorized withdrawals :-Internet cash advance now lenders deposit money directly into a borrower’s bank account, but they also withdraw fees directly from the account.

Cash Advance Loan Alternatives

Many consumers who need immediate cash believe cash advance loans are their only option; however, there are cheaper, safer alternatives :-

• Take out a small loan from a credit union. Many credit unions offer small, less expensive loans.
• Ask your employer for advance pay.
• Ask creditors for more time to pay bills.
• Get help from family or friends.
• Use a low-APR credit card.
• Budget. A budget allows you to buy what you want and avoid unnecessary purchases. Keep track of all daily purchases. Buying a $2 cup of coffee every day costs more than $700 each year.
• Build an emergency fund. Keep a $500 savings fund for financial emergencies.
• Get overdraft protection. See if you have or can get overdraft protection on your checking account. Make sure you understand all the terms and costs.

If You Take Out A cash Advance Loan

There are steps you can take to ensure that your cash advance loan is as risk-free as possible : -

• Make sure the lender is licensed. Payday lenders must be licensed to operate in most states. Check them with your state, Division of Financial Institutions or Department Of Commerce, to make sure they are licensed. Be especially careful with online lenders, who may be operating illegally in your state.
• Check the lender’s reputation. Contact your state’s Attorney General’s Office and Better Business Bureau to review complaints filed against the company.
• Know and understand all costs. Know the full cost of the loan and the APR before you sign the loan agreement.
• Make sure you can repay the cash advance now. Borrow only what you can afford to repay by your next payday. Otherwise, avoid all cash advance payday loans.