Cash advance loan costs are high but they do not always mean costly borrowing — depends on how you’ll use the cash advance. Borrowing from payday loan services for reducing more costly fees and charges justifies the cost of the funds.
Payday loans are clearly the easy solution for a lack of funds. But you should consider the true cost before deciding, especially if you’re using it for a daily consumption’s groceries. For example, you can compare the cost of using a cash advance loan to the fees charged for taking a cash advance on your own credit card.
Also, consider your ability to repay the loan. Cash advance loans often lead to a cycle of debt and stress for people who are not able to repay the loan by the next pay check. Remember, consumers with low bank accounts are the main target of payday services. So, you should be aware of any harm in using these services.
The Costs of a Cash Advance Loan
Cash advances aren’t just simple loans that have a small bit of interest added into them. Several sources including the FTC and the FDA state that the usual APR is between 350 – 650% with some as high as 780%.
A loan of $100 ranges cost from $15 to $30. Don’t want to repay the loan by the pay date? It can be renewed with another fee due at each renewal. A loan of $100 can cost $60 in fees after 3 renewals.
In addition to high costs of borrowing, missing one cash advance payment from a cash advance is the worst thing that you can do because that is where the trouble starts. If you miss payments four or five times, then you may end up paying interest equal to the amount which you borrowed in the first place.
How to Minimize the Risks of Cash Advance Loans
Some consumer protection organizations report that the high cash advance loan costs can often lead to more debt and problems. In order to lower this risk, you need to check the urgency of your financial needs or talk to a financial advisor to find the right course of action, which best suits your current financial situation.
If you’re having debt problems you need to seek no or low-cost credit counselor from a local non-profit organization. These organizations can help with reducing current interest charges and lowering monthly payments. If the problem is budget, you should look to a financial planner who can help you to manage your money.
Once you decide to borrow money from a payday loan company check the total cash advance loan costs and the fine print before you sign the contract. Remember, cash advances should be used wisely regardless of your current financial situation.