All Your Questions About Payday Loans And Cash Advance Answered Here
Introduction:
Managing all the various expenses involved in running a household can be a tough task. This task may seem tougher if your financial situation is not in the greatest shape. Handling times of financial difficulties are something that most people have faced at some point in their lives. It can happen to anybody, anytime.
Even if you have secured yourself financially, there may be times when misfortune strikes and all your savings are at stake. There may be unexpected expenses that could lead to a substantial expenditure.
While it is great to have a bank account with adequate funds, there are some solutions that could get you out of unexpected financial stress. The two most common options are payday loans and cash advance.
Both of them are short-term loans and have their own set of risks associated with each of them. You must choose the best option for payday loans and cash advance after careful consideration and after understanding the differences between them.
What is a payday loan?
A payday loan is a type of unsecured and short-term loan. The reason it is called a payday loan is because it is based on the personal check of the borrower held for deposit in the future.
The borrower writes a check for the loan amount plus the finance charge and receives the required loan amount cash. The lender holds this check till the next payday.
On the next payday, the borrower will have to pay the loan amount and finance charge in one lump sum. The loan can be repaid using cash or by allowing the check to be deposited.
If the borrower wishes to roll over the loan for another pay period, they would have to pay finance charge and maybe an additional fee.
This type of loan is a good option for those who don’t own a credit card. It can also be helpful for those who have a credit card but wish to borrow more money than their specified credit limit.
What is a cash advance?
A cash advance is another type of short-term loan but this service can be used with the help of your credit card. You could take a certain amount of loan against your credit card depending the credit limit that you have.
Using your credit card to make a purchase is also a type of short-term loan. However, when you take a cash advance against the credit card you receive the loan amount in the form of cash. In order to get the cash, you would need to go to bank or ATM and use the credit card for the cash advance facility.
Most of the credit card companies do not allow you to take the entire amount of your credit card limit as a cash advance. Cash advances may also include different fees and expenses and it is better to know all about them before taking a cash advance.
The interest rate of a cash advance is usually higher than that of a credit card transaction. Getting a cash advance is easy as it has a fast approval process.
The structure of a cash advance is quite similar to a payday loan. They are designed such that you would need to repay it within a month or on your next payday.
Cash advance that is taken for business purposes is called merchant cash advance. Merchant cash advance can be a good option if you need capital for your business quickly but might not have the ideal credit for it.
It can be used for your business needs such as hiring staff, for marketing campaigns or even to expand or repair your office.
Sometimes, another term for describing payday loans is a cash advance. Thus, payday loans and cash advance are both loans taken for a short period of time and are quite popular.
When would you need payday loans and cash advance?
Though payday loans and cash advance are high-interest short-term loans, they might be useful to get you out of your financial woes. They might be the last and only resort if you run out of options for your financial needs.
Let us look at some situations when you might need to take payday loans and cash advance:
- For everyday expenses:
Running a household such that you do not fall behind on your monthly payments can get difficult sometimes. When your expenses are more than your income it could mean the onset of some financial trouble.
If your household expenses are not budgeted, taking payday loans and cash advance might be the only solution.
- For medical emergencies:
A medical emergency in the family can be a traumatic time. The problem can seem even more insurmountable if there is not enough cash to handle it.
Most medical treatments can be expensive. They could happen unexpectedly, at any time and not everyone might have a good bank balance to deal with it. If there is a death in the family, or someone has a major medical emergency, payday loans and cash advance can come to your rescue.
- For overdrawn checking account:
There may be many people who are not in the habit of keeping a check on their bank account balance. This could lead to a situation where you end up writing checks but there is insufficient balance in the account.
The policy and charges of overdraft fees and insufficient funds vary from bank to bank. The amount that banks charge you for overdraft fees can lead to more financial trouble. They also have a certain overdraft limit.
If you end up overdrawing a large amount of money, it could affect your financial report. You may even find it difficult to open new bank accounts. Payday loans and cash advance could help to avoid such situations.
- If you reached the credit card limit:
In today’s world of plastic money, it is very easy to get carried away while spending. Credit cards seem like the best option as you can buy now and pay later. However, credit cards do come with their terms and conditions, which you may find difficult to keep up with.
Though credit cards can help you to build a good credit history, it is essential to manage debt responsibly for it to happen. They can be a good way to control your finances if they are handled well.
If you have gone overboard with your credit card expenditure, payday loans and cash advance can help you get back on track. They can teach you valuable lessons to manage your money well, which will be useful for life.
Requirements for getting payday loans and cash advance:
Getting payday loans and cash advance is quick and simple. Usually, the qualification requirements are limited.
Some of the requirements are personal identification, proof of employment and income, a bank account with a relatively decent standing etc.
Most of the times the lenders do not conduct a credit check for a payday loan.
The size of the payday loans and cash advance depends on a number of factors. They can vary from place to place and are in accordance with the specific laws.
Advantages and disadvantages of payday loans and cash advance:
Many people considering taking payday loans and cash advance especially if they need it for emergency reasons and for a short duration.
Given below are some of the advantages and disadvantages of opting for them.
Advantages:
- Payday loans and cash advance are the best options if you are looking for a quick source of cash. Getting payday loans and cash advance can be an immediate solution for your financial needs and that it why it is such a lucrative option.
- They can help you handle an emergency when you need a little extra cash to tide over the situation. Whether you need money to fix the car or take care of some unexpected health issue, payday loans will be able to help you out.
- Whenever you find that you are in need of some money and you need it fast, a cash advance can come to your rescue. The option of taking a cash advance may seem especially helpful if you are traveling, are away from home and are faced with financial trouble.
- Most lenders do not conduct a credit check before approving the payday loans and cash advance. If you do not have a credit card, taking a payday loan will not affect your eligibility in any way. Taking a merchant cash advance is possible even if the credit information available about the business is little or none whatsoever.
- A payday loan can be helpful for those who are on the path of becoming financially independent. It can help you in situations where you might not have enough money for your expenses till the next paycheck arrives. A payday loan can teach you the valuable lesson of money management.
- On the other hand, payday loans can also help you save money. Taking a payday loan to pay essential bills can help you avoid paying for bank overdrafts, bounced checks, etc.
- Most of the times the company giving you a merchant cash advance does not require any assets as collateral. The main factor that they would consider is if the business has a good sales record. The second important factor under consideration would be if the business has a strong potential for sales in the future.
Disadvantages:
- It is not an advisable option if you need a long-term loan such as for several months. Payday loans and cash advance are usually given for a small amount of money. If you need a large sum of money, then this might not be the best option.
- You will not be eligible for a payday loan if you are unemployed or only working part-time. You need to have a full-time job to qualify for this loan. Also, you will not be able to get a loan if you do not have a bank account.
- One of the drawbacks of a credit card cash advance is the absence of a grace period. The interest begins to accumulate when you get the cash.
- Another disadvantage is that payday loans and cash advance can affect your credit score. When you take a cash advance and do not make the payments on time, the credit card company reports the payment habit to major credit bureaus. This can affect your credit score.
- On the other hand, if you ensure that the payments are done regularly and on time, it can help to improve the credit score.
- When you take a payday loan, it does not help to improve your credit score. But if the payments are not done on time, your credit score is negatively affected.
Tips to handle the responsibility of payday loans and cash advance:
Getting payday loans and cash advance is a relatively easy process and one should never forget the responsibility that comes along with it. It is important to repay them well within the stipulated time. Not doing so could result in defaulting on the loan and this could land you in further financial trouble.
Here are some tips to help you handle your payday loans and cash advance responsibly:
- Taking payday loans and cash advance should be an option only if you are faced with an emergency situation. Taking payday loans and cash advance when it is not really necessary will increase your debt.
- The aim of these loans is to help you cover any emergency expenses that you may incur between your paydays. These short-term loans must not be used for impulse purchases as that can land you in more financial trouble.
- It is advisable to determine how much money you need before you apply for payday loans and cash advance. This would help you ascertain your specific requirements.
- One may be tempted to take a loan higher than the amount requirement especially if you are eligible. This is not a financially wise decision. Keep in mind that the smaller the loan amount, the easier would it be to repay it.
- Sometimes it may happen that you may not need the entire amount of money that you have borrowed. In such a case, it is better to keep that money aside and use it to repay the payday loans and cash advance.
- Repaying the loan must be on the top of your priority list. You must stay committed to pay off the loan as soon as possible.
- Avoid missing payments at all costs as this could worsen your financial situation. Sometimes you may need to find other sources of income to ensure that you can pay the loan on time. If required, you could take up a temporary job so that the extra income could help in the repayment process.
- One of the best ways to avoid missing your payment of your payday loan is to allow the lender to automatically withdraw the payment amount from the bank account. One downside to this is to ensure that you have the required funds available in your account.
- If sufficient funds are not available, you might have to pay lender fees or bank draft fees, which can be expensive. If you do not authorize the lender to withdraw the amount electronically, you must track of the date and make the payment before it is due.
- It is advisable to use your credit card to make purchases rather than taking a cash advance. This way you can cut down on the higher interest rates and limit the transaction fees.
- One of the best ways to avoid payday loans and cash advance is to set aside money regularly as a type of emergency fund. This can help you to take care of expenses that may come up unexpectedly. Setting up this type of fund in financially sound times could help to avoid taking payday loans and cash advance in tough times.
Tips to choose the right payday loan lender:
There are numerous lenders that offer you payday loans. This may make it tougher for you to choose the right one depending on your needs.
Here are some tips to make the decision process a little simpler:
- License:
Lenders are required to have the required license to operate and this can help you differentiate between the reliable and not so reliable ones. There may be companies that are not legitimate.
Before taking a payday loan, do some research and check for their license information and lender history. You could also find out from other people who have previous experience in dealing with the lender about their practices. Ensure that the company you choose to deal with is a reputed lender.
- Terms:
Before choosing the payday loan, make sure that you are fully aware of the terms and conditions that are applicable. It is advisable to have a written loan statement that clearly mentions all the terms and conditions of the loan.
You must also get a written agreement that is duly signed and which includes all the necessary information. The time period that is taken to process your loan application could also vary. Some might take an hour or less while others may take longer.
- The rate of interest:
Each lender is different and has their specific processing methods and charges. Ensure that you fully understand the rate of interest being charged as this can vary from lender to lender. Some might offer more money with higher interest rates.
Conclusion:
Using payday loans and cash advance must only be considered for meeting your short-term financial requirements. If it becomes a habit, you must seriously consider strict measures for financial planning and budgeting.
You could also consider other options such as borrowing money from family to tide over the financially difficult time.
If you need to take payday loans and cash advance ensure that you avail the services of a reputed and well-known lending company. Check their terms and rates of interest and compare them with other companies to ensure that you get the best deal.
Always maintain the required payment schedule to avoid falling deeper into the debt trap.