Payday Loans

How Do Cash Advance And Payday Loans Work?

Cash advance and payday loans have gained rapid popularity in the last few years. The basic concept seems to be very attractive, but the overall picture is not a very pleasant one. Therefore, if you are considering signing up for such programs, you are strongly recommended to do a thorough review of its pros and cons first. You must be well aware of how they really work, how (and whether) they can benefit you, and what (if any) the risk factors are. You will find the following information useful in this regard.

You Fill Out An Online Application Form

You can apply for cash advance and payday loans by filling out a simple online application form. You are asked to provide some basic details in this application form, such as your name, address, employment details, whether you have a checking account or not, and how much money you want to borrow. Here, it is important for you to keep in mind that at this stage there is no need to provide your bank account details or other crucial information to them. You will be asked to provide your bank account number only after your application is approved.

Send A Postdated Check Or Authorize The Lender For Electronic Withdrawal

In order to ensure timely repayment of the cash advance and payday loans issued to you, lenders require you to either submit a postdated check or give electronic debit authorization to the lender. This is the only assurance for the lenders otherwise these programs work like unsecured loans. However, here you have to be very careful because there are many unscrupulous payday loan companies also in the market, especially those who run their business through Internet and do not have any physical address. You are strongly recommended to do a thorough background check of the company, such as whether they are duly licensed to offer these programs in your state and whether you can trust them at least for the confidentiality of the information you are providing to them.

Repayment Or Nonpayment

You can borrow money on any day during a given month; the due date will always be the next payday. That is why the repayment period for cash advance and payday loans is usually not longer than just a couple of weeks. If the postdated check you have submitted is bounced on the scheduled due date because of insufficient fund in your account, your lenders will charge you a hefty amount of penalty charges as NSF fee. Even your bank will charge you a checking bouncing fee. Most of the lenders are so unscrupulous that they send the same check again and again for collection even if it keeps on bouncing. This results in multiple times NSF fee (charged by lenders) and check bouncing fee (charged by banks). Eventually, your overall financial burden keeps on rising very fast. What is worse, you are also charged interest and late fee for every single day of delay in repayment.

Rollovers

Most of the lenders also provide you the ‘convenience’ to extend the due date for cash advance and payday loans for one month. This is called rollover or renewal. This looks like a convenience because you get some time to arrange for funds to ensure repayment, but in reality, it makes your overall situation much more horrible. In general, you are charged over $50 on every $100 of payday loan issued for a 14-day period. So, if you have borrowed $500, on the first scheduled due date, you will have to repay around $750. If the due date is extended by one month, you will be charged interest and other charges at the same rate for the extended period of time. So, after just one-month rollover, your overall outstanding debt will grow to as much as $1125 (NSF and other penalty charges are additional). As you can see, within a month, your $500 of initial debt can become more than double.

Alternatives

Even if you are sure that you can make timely repayment, cash advance and payday loans are still not a recommended choice because it is quite expensive. After all, paying back over $750 for a $500 of loan does not seem to be a fair deal. You are advised to consider other alternatives, such as borrowing small short-term conventional loans form credit unions, advance against your salary from your employer, or just a favor from your friend. There can be several other inexpensive possibilities as well. For example, you can sell the junk items from your home. There can be some specific solutions for specific cases also. For example, if you need money to pay for car repair, you can simply ask the repair agency to accept a postdated check. If you have been using the services of the same agency for a long period of time, the agency is quite unlikely to refuse to your request.

Last, but not the least, you are facing a cash crunch situation probably because you are not following a proper budget plan or probably because your budget plan is not working fine for you and it needs some better adjustments. You must always have an emergency fund if you want to avoid cash advance and payday loans. So, work on your budget plan accordingly. Practice frugal living for a few months if that is what it demands. The basic idea to improve your savings is very simple – you have to cut down your expenses to as low as possible and increase your income to as high as possible. What about getting a second job or working part time for a few months? When improved income is accompanied with reduced expenses, you will end up with a saving that will always save you from getting into financial troubles.


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