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What You Need to Know About Cash Advance Payday Loans

One person’s financial gain can be another person’s downfall. That’s certainly true when it comes to cash advance payday loans.

While a payday cash advance might help some people when they’re facing an unexpected financial emergency with low credit, these short term loans can put others in a tight squeeze. High fees coupled with short repayment schedules can make these cash advances challenging to repay on time.

It’s important you understand how a payday cash advance affects your budget before signing along the dotted line. Being informed can help you decide whether a payday cash advance is the right fit, or if you should learn about other options.

Here are some of the essentials you need to know about cash advance payday loans.

1. They Come with High APRs

APR stands for Annual Percentage Rate, and it represents the total cost of a personal loan once you add in interest, fees, and other charges.

How high this rate climbs depends on a lot of things. However, your credit score plays a large role in setting your ARP. Generally speaking, the lower your score is, the higher your APR will become.

A bad score, after all, suggests you’ve handled a loan or line of credit poorly in the past. It tells financial institutions that you may encounter these problems again.

While some institutions flat out deny you loans if your score is too low, some payday online direct lenders may still approve you if you meet other eligibility requirements. However, they’ll likely set higher APR to counteract the risk bad credit represents.

2. They’re Short Term Loans

Cash advances have some of the shortest term lengths in the financial world. Many of them are due back in full by your next payday, which is how they earn their name.

Online direct lenders will set your due date according to your pay schedule. Your due date will coincide with your next paycheck—whether you get paid bi-weekly, bi-monthly, or monthly.

As most people get paid bi-weekly, the average cash advance is due in two weeks. That means you’ll have 14 days to come up with your principal (the amount you borrow) and any interest and additional fees.

3. They Help with Unexpected Emergency Expenses

Responsible online direct lenders will tell you a cash advance is only available in an emergency. It’s designed as a backup in an unexpected financial crisis when your savings or paycheck fall short. You can use it to help you when there’s no way around paying an urgent auto repair or medical expense.

That means cash advance payday loans aren’t ideal when you’re making big, planned purchases. You should never tap into a payday loan to cover a vacation, car, or unnecessary splurge item.

This rule of thumb isn’t always obvious. As a result, nearly 70 percent of payday borrowers wind up taking them out to cover regular expenses, including utilities, credit card bills, and rent.

If you find it hard to pay these essentials on your own, reach out to a free credit counselling program before you borrow a payday cash advance.

The Takeaway

Sometimes, emergency short term loans are an affordable solution to your financial problem, even with high APRs. But sometimes, they won’t fit your emergency at all. Knowing this can help you find a better option.

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