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How Payday or Cash Advance Loans Work
We all have little emergencies that crop up when we least expect
it. They usually only require a minimal amount of cash to solve,
but they generally require immediate attention. You may not have
the cash readily available, but you will have it when you get
your next paycheck. You obviously can't go to a bank to borrow
money because the process would take too long. So what do you
do? You get a payday loan. These are also known as cash advance
loans because you are being advanced cash against the paycheck
you will receive.
With this type of loan, a borrower writes a
postdated personal check payable to the lender for the amount to
be borrowed plus a fee. The lender gives the borrower the amount
of the check minus the fee. The check is held until the loan
payment is due, which is typically within two weeks. The lender
then deposits your check unless you have already repaid the
loan.
Fees for payday loans are either a
percentage of the amount of the check or a fee charged per
amount borrowed e.g. for every $100 borrowed, you pay $5. If you
extend the loan beyond the original time agreed upon, you would
pay the fees for each extension. Keep in mind that under the
Truth in Lending Act, the fees for payday loans must be
disclosed before you accept the loan. You must also receive a
written statement that includes the finance charge and the
annual percentage rate (APR), which is what the loan would cost
you if you didn’t repay the money for a year.
A payday loan is typically a more expensive type of credit
because it is for a short-term and there is a higher risk of
default. It is not meant to be a solution to long-term money
problems, but rather a quick fix for a particular situation.
Payday loans are most effectively used by paying them back in
full by the specified due date.
Our top recommended Payday Loan Companies:
Recommended Online PayDay Cash Advance Lenders:
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