A cash advance loan is a loan you take out for a very short period of time. You pay a fee to borrow the money, even if it’s just for a few weeks. A cash advance loan can be very expensive. Before you get one of these loans, consider other ways to borrow.
How does cash advance loans work?
You give the lender a check for the amount of money you want to borrow – plus a fee. The lender keeps your check and gives you cash, less the fee they charge. On your next payday, you have to pay the lender back in cash. You owe the amount you borrowed plus a fee.
How much do cash advance loans cost?
A cash advance loan can be costly. This is true even if you only borrow the money until you get your next paycheck.
You borrow $500. The fee is $75
You give the lender a check for $575.
The lender keeps your check and gives you $500 in cash.
After two weeks, you give the lender $575 in cash and you get your check back.
The bottom line: You paid $75 to borrow $500 for two weeks.
How do I compare costs from other lenders?
Most loans have an annual percentage rate. The annual percentage rate is also called the APR. The APR is how much it costs you to borrow the money for one year. As said, the APR on cash advances can be substantial. When you get a cash advance loan, the lender must tell you the APR and the cost of the loan in dollars.
How do I calculate the APR?
The annual percentage rate, or APR, is based on the amount of money you borrow, the monthly finance charge or interest rate, how much you pay in fees, and for how long you borrow the money.
You need to borrow $500. You will repay the money in one year. You compare the costs of borrowing that money:
The bank or credit union has a loan with an APR of 7.5%
You will pay $21 in interest
A credit card has an APR of 20%
You will pay $56 in interest
A cash advance lender has an APR of 390%
The bottom line: You will pay $1,518 in interest
What happens if I can’t pay the cash advance lender the money I owe?
If you cannot pay the lender the money you owe, you can usually borrow the money for two more weeks. This is called a “rollover,” or “rolling over” the loan. To roll over the loan, you pay another fee. If you roll over the loan a few times, you will pay a lot to borrow the money. It becomes harder to get back to where you started.
What should I do before I get a cash advance loan?
Before you get one of these loans, consider other ways to borrow money:
- Can I get a loan from a bank or credit union with a friend or family as co-signer?
- Can I get more time to pay my bills by talking with my other creditors?
- Can I use a credit counselor to help me consolidate my existing loans?
- Can I borrow money from family or friends?
What if I’m in the military?
If you are in the military, the law protects you and your dependents. The law limits the interest rate on cash advance loans. The law also tells lenders to give you information about your rights and the actual costs of the loan. The military also offers financial help and help managing your money.
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