Wednesday, May 4, 2011

What exactly is a Payday Loan or Cash Advance Loan?

You are bound to have heard about the ease of getting a cash advance loan from small and medium size lending institutions. Your officemates, friends and family members may have talked about it, and now that you find yourself in a cash flow situation where you are considering availing yourself of this financial facility, it is best to fully understand what you are getting into so you do not end up feeling trapped in a cycle of endless borrowing.

A cash advance loan is a short term loan made from a private lending company. Some call it a payday loan while others may talk about it as a paycheck advance or just a plain cash advance. Whatever it's called, a cash advance loan is classified as a small loan, because the maximum amount lent out is usually less than $1,000 and is payable on or before the next payroll date. A cash advance loan is collateral-free with minimal loan requirements, and the processing time may only take a few short hours with the loan being released in less than 24 hours. Fast and convenient, isn't it!? However, there is a catch: because a cash advance loan is collateral free and hassle free, the loan interest is high. The annual percentage rate (APR) can go up to as much as 800%.

So you may ask, is there no ceiling to the interest rate that these lending institutions charge? It all depends on what state, or city, or country you reside in and where you applied for a cash advance loan. In the United States, cash advance loans are regulated in each individual state and there are about 15 states that deem a cash advance loan as illegal based on their usury laws, meaning any and all interest charges beyond the regulatory interest rate cap based on an annual percentage rate (APR’s) is a violation of the law. It pays to know the basic state regulations in your area regarding interest bearing loans for your own protection before applying for a cash advance loan.

You can go online to get more information regarding a cash advance loan. Ask friends which cash advance loan institution they would recommend in your area. Compare the interest charges and ask them about their miscellaneous cash advance loan fees and other service charges, because some lending companies may quote lower interest rates but they charge more service fees and they can end up being more expensive. Obtain information regarding service fees for rollovers or loan renewals, and how much in interest and finance charges they collect for late payments.

The whole point here is for you to have a basic understanding of how the system works and how it can affect your financial position. Being in control of everything is the key: that is why it is important to have a good grasp of what the limits are. A cash advance loan can be a good friend when there are unexpected or emergency bills that crop up and you are short of cash, but you can also let it become a foe when you allow it to become a bad habit. Be the master not the slave. Settle your cash advance loan as soon as you can and perhaps you will receive a rebate.