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Payday Loans & Cash Advances:
How do they really work?
Payday cash advance loans are
essentially short-term loans that may use a borrower’s paycheck as collateral. Working individuals who are mainly
dependent on their paychecks for money may occasionally find themselves in a
spot where an emergency requirement arises and the next paycheck is still
far away.
In such instances, lenders offer cash advances to adult individuals with an
assured net income of at least $ 1000 per month. The loan amount is to be
repaid by the borrower in full on the next payday. Cash advances charge a
rate of interest of up to 20% and should ideally be taken in small amounts
so that they can be repaid easily. The high rate of interest is charged as
these loans are short term and given without a credit check. Most lenders
offer a first-time payday cash advance of up to $1000.
The process of applying for and obtaining a cash advance is automated and
can be carried out online. The borrower is required to submit a short
application, which is usually replied to via email. The money is transferred
to the borrower’s account upon the signing of the loan agreement and
submission of postdated checks. Alternatively, the lender can directly
withdraw money from the borrower’s account on the designated due date.
Inability on part of the borrower to pay the loan in full may imply a
violation of the loan agreement which can prompt the lender to demand
non-sufficient funds (NSF) costs. If a lending agency chooses to refer a
borrower’s poor payment record to the credit bureau, it can harm a person’s
credit score and affect his chances of obtaining a loan.
Ideally, a person should refrain from taking payday cash advances often as
these incur a high rate of interest. They should be kept as the final option
when loans from friends cannot be availed and credit cards cannot be used.
Factors that affect the approval of a payday cash advance include federal
and state lending regulations, net income, and existing previous payday
advances or other loans. Usually payday cash advances are scheduled for
payment 15-18 days from the application date. Individuals can avail only one
payday cash advance at a time from a given lender.
Lenders allow for an extension of the payment date and deduct an extension
of payment fee on the original due date. There is a limit to the number of
extensions allowed by the lender. Most allow up to four extensions of the
payment date. The next scheduled date for repayment is usually the date of
receiving a paycheck.