What is a Cash Advance Loan?
Apr 14th, 2010 by sophie smith
You see them on the street corners every day on the way to and from work, but do you know what a cash advance loan is and when the best time to use it is? A cash advance loan is a loan against your next paycheck. Usually the loan is for no more than one thousand dollars, and you will have to pay a rather hefty interest rate, which is why it should only be used for emergencies and not as a regular staple of your spending habits.
The idea behind cash advance loans is that you sometimes need a little money to get you between pay checks , when something bad happens. It is expected that when you get paid you will be able to pay back the loan, so the terms of the loan are usually for no more than a couple of weeks. This makes it a very short term loan, but is usually enough to pay off an unexpected medical bill or enough to get creditors off your back before repossessing your car or something else.
The biggest draw to these loans is by people who can not get a traditional loan, including people with bad credit , or nothing of value to put up as collateral. While this does make these ventures a little more risky for the lending party, thus a higher interest rate, they are not as risky as it might seem. Few people who take out cash advance loans default on the loan. Some companies will even take measures to ensure that they can’t be defaulted on, but not all of them. Because there is an insurance that the person will have the money in a couple of weeks it is not necessary to ask them to put something up.
Some economists think that this may be very risky behavior for the economy, especially considering the state it is in now, but recently a study was done that shows that it is actually the opposite. Pay day loans may actually be good for the economy and help to rebuild it by helping people avoid extra fees, improving the credit of people who pay them back, and generally strengthening the financial situation. There is more information on this study at this article .
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