4 Reasons to be Cautious Before Taking a Cash Advance Loanby Mclaren V. Stories of latest Business Trends
If you have a financial emergency, a cash advance loan seems to be a quick solution to get cash instantly. But, if you do not carefully utilize the amount, this type of loan may leave you in debt. Cash advance loans are short-term loans that target individuals who need cash immediately. They even have other names such as payday loans, no-credit-check loans, or guaranteed loans. There is no shortage of lenders who offer these types of loans, and it is extremely easy to get this loan.
Before applying for a cash advance loan, be careful as they usually come with high fees and may push you into debt. Listed below are the four reasons why you need to be careful about cash advance loans.
1. They come with high finance charges: Cash advance loans come with borrowing fees that can equate to Annual Percentage Rate (APRs) of 300% to 500%, and much higher. Since loan costs are marketed as a flat dollar amount while taking out a loan, you may not realize that the rate is high. But, when you look closer, borrowing a loan of $500 with $75 as interest and finance fee, and a 14-day term will be equal to taking a loan at 391% APR. Now you realize how expensive it is to borrow a cash advance loan.
2. Can trap you in debt: Besides those high fees, if you don’t pay off the loan by the due date, the lender offers you a new loan with a new fee. The majority of the borrowers end up refinancing their debt. According to a Consumer Financial Protection Bureau report, the average payday or cash advance borrower rolled over a loan nine times during a 12-month period and paid a total of $458 in fees alone.
3. There is no credit check probably but also no credit-building: Cash advance loan lenders typically won’t perform a hard credit inquiry during the loan approval process. Though it may be appealing, you must know that these types of loans will not necessarily help you improve your credit, as the lender will not report your payments to the credit bureaus.
4. You may overspend: According to a study by Pew Charitable Trusts, more than a quarter of payday loan borrowers said that payday lenders have overdrawn from their checking accounts. Overdrafts may result in fees from the lender as well as the bank, adding up even more to the debt cycle.
Overall, cash advance loans are payday loans themselves. They are dressed up as some other type of loan to help you access cash instantly. So, do not fall into the debt trap and make it hard for yourself to get out of it. These loans should be given the last preference when you don’t get a loan from any other sources. If you are looking for suggestions on the type of loans to consider, a line of credit could be the best alternative to get cash quickly. Make sure you get it from top lenders like Advance Financial as they provide the flexibility to repay the money at your convenience, rather than having a fixed EMI every month.
Created on Apr 29th 2021 21:45. Viewed 79 times.