Cash Advance Loans

Payday Loans and How They Work in the US

When you hear the term “payday loans” you may ask yourself what exactly they are and what they represent. They are considered short-term cash loans but are also commonly known as cash advance loans and are strictly determined by the lendee’s good standing bank account and the fact that the person is 18 years of age and older. People seek out these loans in case of financial emergencies. These loans on average offer a term of 2 weeks but that is just the average and can differ with each state. The person who chooses to borrow money must also obtain a stable source of income and identification. This type of loan does not require the lender to establish whether the borrower is capable of paying back the loan. There is no credit check or questions asked pertaining to the borrowers’ capability in repaying the loan, but more importantly, they are always based on the lender’s potential to collect the money. 

Acquiring a payday loan as such can be quite simple and fast, which what makes it tempting. In some instances, payday loans will require the lendees’ to sign over electronic access to their bank accounts in order to receive the loan and to pay it back. Other times, the borrower may be required to provide a personal check for any future deposits or to give access to the borrower’s bank account. To receive the cash the borrower may be asked to write a personal check for the amount they choose to borrow, including the finance charge. Depending on the state, a borrower may be offered a longer-term loan where payments are automatically withdrawn from the lendee’s bank account on each payment due date. These can range from $100 to $1,000 with finance charges ranging from $15 to $30 which also depends on the amount borrowed.

Interest rates for a two-week loan can range from 390 to 780% APR. Shorter-term loans could have an even higher APR due to certain states not capping the maximum cost. These high-interest rates and strict terms can often make a borrower feel trapt in debt if they are not able to pay it back. As I mentioned before, every state has different loan terms so those terms can vary. For example, New Mexico does not allow short-term loans unless it is a refund anticipated loan. In New York, it is strictly prohibited to give payday loans. On the other hand, Washington allows short-term loans with a limit of $700 or 30% of gross monthly income that can be borrowed, with a maximum of 45 days to repay the loan with no possibilities of refinancing or extending the time allotted for repayment. California allows less time to pay off the loan but also offers a much lower maximum of what can be borrowed.

These loans can be acquired through a physical store or online where you fill out an application for the loan and everything is done strictly online with the exception of a phone call or two. Although a cash advance seems very tempting, the terms are what should concern future borrowers. It is crucial in understanding the meaning of such a high-interest rate and how it could affect your financial standing.