Many people claim that a cash loan is a very slippery slope to enter, even if you face unexpected expenses popping out at the worst time. Compared to other types of credit tools, such as personal or installment loans, cash lenders charge relatively higher fees and require debt repayment within a short period. So why do many people still apply for these loans in an emergency spot? Today we will afford a straightforward survey on a cash advance loan and its tricky points that you should keep an eye on.
What is a Cash Loan?
A cash advance loan is a short-term loan that usually provides a rapid application process in exchange for real, quick funds if approved. Depending on the state of your residence, cash loans may be available to take out online or in a payday loan store. To get one, you fill out your credit application, provide proof of employment, and wait for the lender to qualify you for the amount you wish to borrow, plus fees. Despite short repayment terms, there is also one important thing to consider well-known as a one-time payment. Unlike other non-revolving credit tools, paycheck loans need to be paid back all at once in a lump sum installment, typically upon the borrower's next paycheck.
When do You Need to Apply for a Short-Term Loan?
Usually, when people look for short-term loans, they look for small cash advances to cover unexpected emergencies. At this very stage, many Americans face a major obstacle called debt incompetence when your owned debt doesn’t come together with your actual needs. Thus, before applying for short-term cash advances, you have to be confident in your ability to pay your debt back within a couple of weeks.
Major Arguments to be Conscious of Cash Loans
Cash advances are famous as quick financial relief that can be used to cover an unexpectedly high monthly bill. However, everything is not as easy as it sounds, as cash shortfalls may bring forth financial troubles to track other bills. Here are several reasons why short-term borrowers must be careful with cash loans.
1. Be Careful with APRs!
Cash loans come with relatively high-interest rates compared to other credit instruments offered by banks or credit unions. However, high doesn't mean unreasonable yet.
Almost everyone knows that the payday market is less regulated than, for instance, the banking industry. This is the main reason why the American market is full of unreliable lenders.
A Good Piece of Advice for First-Time Borrowers
Take a closer look at the APRs. Bear in mind; APR is not only the annual rate of interest. It may include fees and accosted costs as well. That is why it is the focal guide for borrowers to compare different credit offers.
2. Credit Fees May Trap You in Debt
The borrower's inability to pay back the loan may motivate a lender to refinance your debt by offering to take out a new loan and pay additional fees. This process is also known as “rolling over.” On average, every second cash loan rolls over eight to nine times every year. That is why trustworthy lenders strongly advise taking out payday loans only after making sure that you can handle a lump sum payment until your next paycheck.
3. Usually, No Credit Check Means no Credit Building
In traditional finance, lenders usually check your credibility (ability to return your debt) before approving or rejecting your credit request. But in case of paycheck lenders, they commonly don't apply hard credit pulls while assessing your credibility, and they don't report your financial information to the credit bureaus. This is why cash advance loans will not mandatorily help you boost your credit rating.
4. Do not Trust a Hundred Percent Guarantees
Many online lenders offer cash loans with guaranteed approvals without even looking at your credit report or checking your ability to pay your debt back. It's a kind of trap to attract borrowers and enforce predatory terms to get cash in on it. Hence, never trust lenders that warrant your credit approval without having a clear look at your financial situation.
Actually, no one is excited about the idea of getting a loan and paying extra money for the interest. Thus, if you have a chance to borrow from relatives or friends, it may cost next to nothing. But if the above-described case is not what fits your situation and you have to turn to lenders, then you need to be conscious in order not to get stuck in a debt trap.
Remember, cash loans are not long-term financial solutions as many borrowers usually consider. You need to take them out only if you have enough funds to pay them back in a short period. Unlike others, we think that payday loans may be a good solution in case of an emergency if you know how to make use of them properly.