Cash advances tips n tricks

Cash advances make credit available to those with no access to bank loans

Sun, 13 Mar 2005 14:06:43 +0000

Cash advance companies say one of the biggest benefits they offer is that they make loans available to those who would never get them from the banking system. This is quite true in many cases.

There is a segment of society that does not have access to credit cards, bank loans and other normal forms of funds. They have low incomes and poor or non-existent credit. It is a valid observation that payday loans are sometimes almost the only way out for many such people.

Payday lenders also point out that abusive collection practices are not used by responsible lenders anyway. Further, the industry is quite highly regulated in various States and is also subject to many consumer protection laws.

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Consumer groups say cash advances are predatory products

Sat, 12 Mar 2005 12:00:08 +0000

Are cash advances really predatory in nature? That’s what several consumer groups say. They argue that these loans target blue-collar folks who are not very credit-worthy. They don’t have easy access to bank finance. Their take home pay is usually low and barely covers the essentials.

These groups say that payday lenders often have poor disclosure standards, high fees and that many consumers are not aware of the true costs of the borrowing arrangements they’re getting into.

Apart from that, consumer advocates say cash advance companies use oppressive collection practices. They end up trapping customers in a vicious cycle of ongoing payday debt that escalates costs and leads to an unmanageable burden on these families.

These are the basic arguments put forward by payday lenders. In the next post, we’ll look at the stand taken by cash advance companies.

10 things to check out about short term cash loans

What’s the real appeal of payday loans?

Fri, 11 Mar 2005 05:31:56 +0000

Payday loans are immensely popular for several key reasons. They’re fast to obtain – you can have cash in your account the next day or sometimes even the same day.

Compared to borrowing from banks, cash advances can be obtained with much less hassle. You only need to produce a pay stub, your social security number and a bank statement, in many cases. That’s a breeze compared to going through the documentation process of most banks.

Best of all, even if you have a poor credit history, as long as you meet some simple criteria like having a job for at least three months, a certain (low) minimum take-home pay, etc, you will probably qualify for a cash advance. That’s why these loans are often considered sub-prime lending – a good percentage of borrowers would not be considered creditworthy by mainstream bank and other lenders.

Of course, there are many risks to being a habitual borrower of payday loans. Several are detailed in the posts on this blog – feel free to browse thru them and find out more.

The rapid rise of cash advances

Wed, 09 Mar 2005 03:50:35 +0000

It’s obvious that short-term cash advances companies represent one of the highest growth industries in America in recent times. They originally established themselves in fairly modest neighborhoods of big cities and rapidly grew to attain a national presence. So are the good times continuing to roll endlessly for payday lenders?

Not really. There is serious opposition from various consumer organizations. Plus, there are well-entrenched interests acting against the payday loan industry at the federal level. Explosive growth of this industry may be happening at the expense of other, pre-existing kinds of businesses.

As a result, there are increasingly tough laws against payday loans at the State level. And consumer organizations generate plenty of bad publicity on an ongoing basis.

More about payday loans

What’s the underlying security in a cash advance transaction?

Tue, 08 Mar 2005 15:25:34 +0000

This was a question someone asked about cash advances. The short answer is there is no security – this form of lending is unsecured. Payday loans are formally called deferred check presentment lending. This is a loan made basically on the strength of a post-dated check.

The premise is that the borrower holds a job from which he or she receives a regular income which has adequate cushion to repay the loan and all charges. Alternatively, the borrower has some other source of regular income like regular interest receipts, rent receipts, etc.

It is meant purely to meet a short-term liquidity problem. In other words, to plug a temporary (and often unexpected) cash shortfall. This form of lending is never meant to be a long-term deal. Of course, most payday loan companies are willing to roll over the loan on payment of charges for the first period for which it was borrowed.

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Cash advances - Are borrowers aware of the true costs?

Mon, 07 Mar 2005 10:17:00 +0000

Many consumer organizations allege that cash advance companies do not always provide a clear picture of the costs associated with a payday loan. And that oftentimes, customers are not aware of what they’re actually paying.

Well, there’s a conflicting mass of survey results on this topic. Some seem to imply that the above allegations may be true in many cases. Others, quoted by cash advance companies, imply that that’s just not the case and consumers make informed decisions about payday borrowing.

Payday lenders are required to disclose their charges as an APR (it’s another matter that many lenders continue to maintain that APRs are misleading – an argument I don’t buy; see previous posts). If that information is not readily apparent, as a prospective borrower, you should ask for it. You have a clear right to know what arrangement you’re getting into and

Bottom line: be fully aware of all details of your borrowing arrangement with the cash advance company. Read the contract, discuss it with third parties of you need to, including your lawyer if the situation so warrants. And don’t hesitate to ask questions to the provider before you finalize your payday loan.

Facts about cash advances

Justifying cash advances

Sun, 06 Mar 2005 16:40:50 +0000

One way cash advance companies justify their high APRs is by comparing it with the APRs (Annual Percentage Rate) you’ll incur on other options – like a bounced check, or late fees on credit cards.

This can often be quite true. A cash advance can cost you, say 300% - 400% in APR terms, assuming you don’t roll over the loan. Whereas non-sufficient funds (NSF) charges can have APRs as high as 1050% or even more.

If you’re caught in that kind of situation, perhaps a payday loan may not be a bad alternative. The danger, as I pointed out earlier, is in repeated use of these short term loans, either by way of rolling the original loan over several times (you end up with extremely high APRs) or by resorting to fresh cash advances repeatedly (you end up building dependence on them instead of building up your own financial cushion).

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Payday lenders vs. banks

Sat, 05 Mar 2005 06:32:05 +0000

One reason why payday loans are popular is that these companies are willing to make very small value loans available – a loan can be as little as $100. If you approach a bank for a personal loan, you’ll typically find that they’re unwilling to make loans for amounts below $1000 - $1500 or so.

The costs of their whole process combined with the fact that their lending rates are fairly reasonable (as compared to cash advance companies) make it difficult for them to give small value loans.

So there is some truth in the argument advanced by payday lenders that their role is to fill a gap in the service models of banks and other lending institutions. They aim to reach the small-small borrower who has a low value need for a short period of time.

All that is true. However, their high fees are difficult to justify, as also their willingness to roll over loans for extended periods of time till the customer really gets into a hole. Even the small size of their loans and the fact that they lend to high-risk customers are not enough to justify their sky-high APRs.

Using payday loans wisely

Fri, 04 Mar 2005 14:23:42 +0000

If you must use payday loans and cash advances, at least make use of them in an appropriate manner. For starters, don’t treat them as a perpetual loan and avoid repaying the principal along with the charges. Some people do exactly that and find out that their obligations never end – the charges just keep piling on.

I’ve demonstrated this using actual numbers in a post a few days ago. Check it up if you need more convincing.

Use these facilities strictly as a one-time loan, to be paid in full – including the amount borrowed and all charges – on the first due date (which is usually your next payday). If you strictly adhere to that rule, and don’t take fresh payday loans repeatedly, you’ll find that these services don’t have much power to harm you. And you’ll find they’ll tide you over whatever emergency you were facing just then.

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Cash advances - To APR or not to APR?

Thu, 03 Mar 2005 06:37:55 +0000

Many cash advances companies claim that computing their charges as an APR (Annual Percentage Rate) does them an injustice. Their argument is that the money they provide is meant purely to tide over an emergency and is therefore more in the nature of a service than a loan. So, they say, rather than look at their charges in APR terms, look at those charges as a fee for services rendered.

In my opinion, this is a flawed argument. Here’s why.

What service does a payday loan company render? They provide cash for a short duration (14 days or so). And they charge a certain sum of money for providing this cash.

Therefore, the costs you pay are for the money you are provided with for that period of time. In other words, it’s the cost of using money for that time frame. Well, a usage cost of money for a specified period of time has only one name – interest.

That’s why you should look at APR – the latter is merely a standardized way of calculating interest charges.

In my view, it is perfectly logical for payday loan costs to be converted to APRs and compared. That does NOT amount to comparing apples to oranges as these lenders claim.

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