How do Cash Advance Loans Work?

Cash advance loans, which are also known as payday loans and short term loans, offer borrowers opportunities to gain quick cash to pay emergency bills without putting down collateral or even going through a formal loan negotiation process. Typically, loans are only available in small sums of money -- usually ranging from $50 to $1,500. In exchange for upfronting cash to non-differentiated borrowers, creditors charge a finance fee that's usually in the range of 15 to 20 percent of the total monies borrowed. Monies must be remitted at the end of a one to three-week period.

These extraordinarily high interest rates, which when extrapolated over a year to find equivalent APRs, can range as high as 1000 percent or more -- rates much higher than those associated with typical credit card or bank-issued loans. That said, cash advance loans cost money to service, and borrowers are typically more unreliable than standard loan borrowers -- so creditors need to cover their bases by charging high fees.

You can find both online and ?brick and mortar? centers for cash advance loans. Shop around to find a good (relatively good) rate, and budget to make sure you can pay back the cash advance loans at the end of your term. While it's possible to refinance the loan, you'll likely have to pay a service charge every time you ?kick the can? with respect to your debt. Thus, if you borrow $100 for a 20-dollar fee, and you have to pay $20 additional to extend the term of the loan, you could end up paying $40 or more for the privilege of getting that $100 in advance.

Logistically, the way cash advance loans work are as follows. The borrower presents the lender with some basic information and a check that's postdated to the end of the term of the agreement. This date should coincide with the borrower's ?payday,? so that the borrower has enough money in his or her account to discharge the loan.

At the end of term, the borrower can pay off the loan in cash and void the check, allow the creditor to deposit the check, or seek to roll-over the loan. Before entering an agreement for cash advance loans, make sure you have the terms and conditions spelled out for you in clear language, and consult a debt management counselor to avoid reliance on cash advance loans in the future.