Payday lenders are popping up on every corner and also online. Cash advance businesses are very lucrative to the lender or these businesses wouldn’t be everywhere. They are known as “payday” or “cash advance” lenders and they are for the most part bad news.
On the surface payday lenders seem innocent enough. Write them a check and they will hold it until you get paid and are able to cover the check you wrote to them. Seems pretty easy and it is, but what is written in the small print.
A cash advance loan is gotten by writing a check to the cash advance company and they hold your check until the agreed upon date, which is usually 2-4 weeks from the time the check is written. At the agreed upon date the lender will either cash the check or you will be required to buy the check back with cash. Online, the money is deposited into your checking account and withdrawn again on the agreed upon date.
The lender makes their money by charging a fee of $10 to $15 per $100 that is borrowed. Since you are only borrowing this money for a month or less, that makes these interest rates the steepest around. Some are over 1000% annually.
At the very least, a checking account is required to open a cash advance account. Some of the lenders require bank statements, pay stubs and telephone bills. Online services may require access to a fax machine.
The big problem with payday loans is they usually lead to an endless cycle. If you take out a cash advance loan for $500, you will have to have an extra $500 the week the loan is due. These loans can be extended and at that time will cost you more in interest and fees. This can turn into a vicious cycle.
Unfortunately, cash advance companies are used by people that can least afford them. Even though credit card cash advances are expensive, they are not nearly as expensive as payday loans. If you are having financial problems, there are better solutions to dealing with your debt than relying on cash advance companies.
If you need extra money, cash advance companies or payday lenders are not going to be your best option. A family member may be willing to help you. The best thing to do is to try to make the necessary changes in your financial situation, so that it will allow you to start an emergency fund for unexpected expenses. You never know when something unexpected will come up and being prepared is your best defense.