A cash advance loan is a type of loan that is offered to a borrower based on their income. The amount that a person is allowed to borrow is calculated using a recent paycheck. Cash advance loans are meant to be short term in nature, and the intention is for the borrower to pay the loan back on their next payday.
How To Apply For a Cash Advance Loan
Applying for cash advance loans can typically be done online or over the phone. Information including name, address and income will be collected at the time of application. The borrower must have a recent paycheck stub available to prove their current income.
There is not usually a credit check required for a payday loan since the borrower is using their next paycheck as collateral on the loan. The lack of a need for a credit check makes the approval process quicker than it would be for other types of loans.
Pros of Cash Advance Loans
• There is no credit check needed, so a person with poor credit can apply for a cash advance loan.
• Funds can generally be deposited into the borrower’s bank account very quickly, so cash advance loans are ideal for people who need money very quickly. Some borrowers can expect funds in their bank account in as little as one business day.
• The small amount of the loan and the fact that the loan is based on the borrower’s income makes it less likely that the borrower will be unable to pay off the loan when it is due.
Cons of Cash Advance Loans
While cash advance loans can be helpful when a person is experiencing a short term financial emergency, there are downsides to taking out such a loan.
• The effective interest rate associated with any fee charged on the amount of money borrowed is very high. For example, a person may borrow $300 and be charged a fee of $15 per $100 borrowed. If the loan is made for a period of two weeks, the effective APR would be nearly 400 percent.
• It is not uncommon for people to borrow using a payday loan in order to pay off other debts. This can lead to a cycle of paying debt with more debt, and fees will start to pile up to exasperate the issue.