The Pros & Cons of Cash Advances
Considering a cash advance or payday loan? You are not alone, these have become extremely popular over the last few years. The reason is simple, people need money and people often need money fast. Those same people who need money fast are unlikely to have access to cheaper lines of credit or low interest loans. This has left an opening that payday lenders will gladly fill. So is it all bad or are there positives to this type of loan? Let’s take a look.
Cash Advance Pros
Lets start with the glass half full and look at the positive aspects to these loans.
- They fill a void that other lenders do not fill.
While the fees associated with these loans is high, they allow people who could otherwise not borrow money, get it. If you have bad credit, there is no other choice and without payday loans, you simply could not get the money that you need. It is easy to say that payday loans should be made illegal but then who will lend people with poor credit money? I have yet to see any big banks offer poor credit loans for reasonable fees.
- They fund quickly.
When an emergency happens, you often need money fast. These loans almost always fund the next business day. This can make all of he difference for someone who has just had their electricity turned off or who needs an emergency tooth extraction.
- They have few qualifications.
Typically all that is needed is a job and a checking account. This makes them available to virtually everyone.
- You have to pay them back quickly.
This could be considered a negative but if you have to pay it back soon, you can get this debt over with and out of the way quickly.
Cash Advance Cons
The cons are many so lets get started.
- They are for limited amounts.
You can only borrow so much with a payday loan. Most loans are well under $1000.
- It is borderline usury.
Since the loans are repaid with fees instead of interest, the effective APR is high often in the hundreds or even 1000% range. A $20 charge on $100 is only 20% if it is carried out over a whole year but for a two week loan, the effective interest amount is staggering.
- They target poor people.
Let’s face it, Trump is not going to take out a payday loan. These loans target and sometimes take advantage of poor people. There is no way to deny this.
- There are many unscrupulous lenders.
This industry is full of companies that are seeking to get every cent that they can. They are all too willing to allow their customers to borrow too much, take out too many loans and refinance them again and again. The goal is to trap them in an endless cycle of loans and fees.
So what is the verdict? Should this industry be shut down or does it serve a useful purpose? My opinion is that it serves a useful purpose but it needs regulations. Without the high fees, no lender would be willing to risk issuing a payday loan. So the fees are unfortunately a necessary evil. Still, every lender should offer their customers credit counseling to help them pay off their loans. Refinancing a loan should also be harder with paying off a portion of the principal being required. And why not offer your customers a free two week extension?