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How do payday cash advances work?
Payday cash advance loans are essentially short-term loans that may use a borrowers 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 borrowers account upon the signing of the loan agreement and submission of postdated checks. Alternatively, the lender can directly withdraw money from the borrowers 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 borrowers poor payment record to the credit bureau, it can harm a persons 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.
Credit Card Cash Advance or Payday Advance?
People will always have some reason for needing cash that they do not have. It does not always have to be an emergency such as unexpected expenses in between paychecks. It could also be because they want buy big-ticket items or go on a grand holiday. For whatever reason, two of the fastest ways to get funds is through credit card cash advances or payday advances.
Both have its advantages and disadvantages. It all boils down to the borrowers ability to pay. Below is a comparison between the two options:
§ Payday advances have a higher interest rate than cash advances from credit cards. The $10 to $30 finance charge per $100 borrowed may not seem too much to pay at first, especially if the borrower is able to pay off the loan after two weeks. However, if the borrower cannot pay on the deadline, the finance charge is compounded for every week that the loan is unpaid, a rate of increase much faster than for credit cards.
§ Credit card cash advances can take a longer time to pay. The usual practice of credit card companies is to apply payments to any existing balance first before paying off the cash advance itself. Unless the payment is large enough certainly well over the combined minimum payment for the current balance and the cash advance it will take a long time for the borrower to make a dent on his credit card debt.
§ Payday loans have no effect your credit history. Because the terms are quite short and the loan is guaranteed against the borrowers next paycheck, payday advances do not contribute to or detract from your credit score. This is unlike credit card cash advances, which are included in your credit history.
§ Borrowers get cash faster with payday advances than with credit card cash advances. There are usually less requirements, no faxing of documents and credit history checks, making the loan process faster and the loan guaranteed, more or less. On the other hand, credit card cash advances are subject to credit history checks and is not guaranteed.
Based on the pros and cons listed above, fast cash loans, like payday advances, seem to be the better choice over credit card cash advances. However, the borrower has to keep in mind that fast cash loans are short-term loans only and should not be used as a long-term financial solution. It is better only if the loan is sure to be paid on or before the deadline.
If the borrower is not sure that the loan can be paid in two weeks, a credit card cash advance would be better because of the longer period for payment. However, one should not make a cash advance on a card with a large balance or, worse, maxed out. People should avoid maxing out their credit cards because it becomes harder to pay several of these at once. In the end, only the borrower can decide which of the two options payday advance or credit card cash advance is more suitable for the situation.