The term cash advance refers to a loan you take out against a future paycheck. This is also commonly known as a payday advance or payday loan. These are short term loan products that are designed to help you address an unexpected financial emergency without having to go into long term debt or sell personal property. Alternatives include bad credit loans for people with a poor credit history.
How Payday Loans Work
Payday loans allow borrowers to borrow money against a future paycheck very quickly. In most cases, a borrower can enter into a payday loan facility, complete an application and leave with their funds in as little as an hour. Online payday lenders will generally direct deposit funds into the borrower’s checking account overnight.
Cash advances don’t require the borrower to pledge personal property against the loan nor do they require credit checks in order to borrow funds. They generally only require that borrows have an active checking account, a regular source of income and proper identification. In most cases, borrowers will need to provide a short list of friends or family members the lender can use to contact the borrower in the event a default occurs.
Payday loans are short term loans, with the principle and interest coming due when the borrower’s next paycheck is received. In most cases, this means the loan term will run anywhere from 2-4 weeks in length.
Why Use Cash Advances?
Cash advances are used to cover a short term financial emergency. Many people who cannot obtain a loan through other means due to having poor credit or those who can’t wait for a traditional loan to be approved will often turn to payday loans to address the shortfall. Plus, the shorter term means that a payday loan is often less expensive than other credit products.
What Does It Cost?
The interest rate on payday loans is higher than with other credit products, however because the loan term is short, it is often less expensive to use a payday advance than other products. Additionally, payday loans are much less expensive than using a bank’s overdraft feature. In most cases, a payday lender will assign a flat fee to the amount borrowed, which is due at the end of the loan term. For instance, the average fee for a retail payday loan is $15-$17 per $100 borrowed. Online lenders will often charge slightly higher fees for their service.
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