Most people that use this way of getting a loan cannot borrow from a bank or a credit union. In most cases, the loan is backed by a postdated check for your next payday. The loans are quick to get and usually easy to qualify for as long as the borrower does not have a bad history with other payday loan companies. Some cash advance places do not check anything, so the borrower only needs to prove a source of income and a bank account. Many people on social security use this method of budgeting, as it is easy to get the money and they pay it off when they get their SS check. The cons are not many, but very significant. A biggest con is the fact that these loans have atrocious interest rates, which are much higher than what most states consider usurious. The second con is that many borrowers never pay off the loan, but just keep renewing it month after month. If the original loan was $500 and the monthly interest rate was $95, then renewing the loan by just paying the interest becomes very expensive if the loan is renewed for three to six months. In some cases, borrowers renew for over a year which means they will have paid back the loan and interest a number of times.
Who Borrows From Paycheck Advance Companies?
The typical borrower is a person or couple who cannot get a bank loan or a credit union loan. For this reason, they are forced to borrow from any source that will loan to them. Payday advances step right in and fill this need. The borrower gets the money they need, and the lender gets a huge interest return on the loan. Of course, people with a bad credit rating will be customers of these loan companies since the bank will turn them down for even a small loan. Emergencies that need immediate cash to resolve are another reason that these companies prosper. The borrower may not have a banking connection they can get a loan from, so they turn to the cash advance people to take care of the emergency.
The Cost Versus Regular Lending Cost
A bank may charge as much as ten percent for an unsecured loan. A paycheck advance will cost over 100% or more for the same amount of loan. The difference in interest rates is mind boggling when compared with each other. A secured loan would have even a lower rate than 10%. As stated earlier, these paycheck loans are very expensive to service by the borrower. Unfortunately, the borrowers of these loans are not able to get money in any other way and are almost saying the interest be damned. They need the money and will do what it takes to get the funds.
The Attraction Of Paycheck Advances
Advances like these are easy to get and just about anyone with a provable income and bank account can qualify for a loan. A working person with paycheck stubs or a person on SS can get an awards letter from a Social Security office proving their monthly award from the government. Since there is usually no credit check, the borrower with a checkered history of credit problems will likely be able to get a loan from one of these cash advance no credit check lending sources.
The Danger Of These Loans
People who are already in trouble financially are also the people that use these loans. Borrowers with little financial knowledge fall prey to these lenders, and in some cases never get out from under the weight of the interest rates that are charged. Long-term use of these loans eats up the income of these borrowers with no other outs for getting money. Many of these borrowers get more than one of these loans to keep their financial situation afloat. The use of one of these loans to service another loan is a real danger sign that the borrower is getting in too deep. There are borrowers in some of the bigger cities that have five or six of these loans. It’s kind of like a reverse Ponzi scheme. Being hooked to the point that the loans can never be retired ends up with the borrower working just to pay mounting interest bills. Another danger of these loans is the ease that they can be obtained by borrowers that could not get a loan anywhere else. The ease of falling further in debt is a very slippery slope for the borrower.
You Can Decide
The Internet is filled with hundreds of sources for this type of loan, and in most cases they are given without any credit check. The maximum loan that can be obtained this way depends on the borrower’s monthly income and the state that the borrower lives in. Each state has its own set of rules that control paycheck advances. The maximum interest rate is also part of state rules. Some of these online lenders will not do business in some states since they do not like the restrictions the state imposes. Be careful applying online as there are some very neat traps that lay within some sites’ applications. Some of these unethical sites have the borrower decline several other offers before submitting the application. These other offers have nothing to do with the loan. If the applicant does not decline the extraneous offers, they will find that they spent $79 or $39 to become a member of a stupid coupon club or some other extraneous membership that they had no idea they had applied to. Decline all such offers.
Better yet apply by phone. The other irritant online is the applications are collected by middlemen and not by the lender themselves. This means the application may be required to be refiled by the proposed borrower. Read all the fine print or stick with local lenders.
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