Understanding an Advance Cash Payday Loan
An advance cash payday loan is a loan in which you borrow a sum of money for a short period of time- until payday. The type of loan gets its name from the fact that it is essentially a loan on your paycheck or an advance on your paycheck. When you take the advance cash payday loan, you write a post-dated check, or provide your bank info, for the loan amount and the fee charged. The money is then debited or the check cashed on payday, unless you pay or extend the loan.
An advance cash payday loan can help you out if you find yourself in a financial crunch between payday, but the interest rates can be high and there are some downsides. Therefore, before you take an advance cash payday loan, you should make sure you understand all of the components of the loan.
Understanding an Advance Cash Payday Loan
There are several keys to understanding an advance cash payday loan:
- What is the term/length of the loan. In other words, how long do you have to pay it back. Most often, these loans last for between one and two weeks. That means if you can’t pay it back at that time, you will have to renew the loan- potentially making the process much more expensive.
- What is the interest rate: The interest rate is the amount you are charged to borrow the money. Most often, when you take an advance cash payday loan, the interest rate isn’t quoted as a percentage rate. Instead, you are charged a flat fee, so you will need to figure out your interest rate yourself. To do this, think about the fee, how much you are borrowing and how long you have the loan for. For example, if you are borrowing $100 for 2 weeks and are charged $15.00, this means your interest rate is $15 for 2 weeks or $7.5 dollars for 1 week. Since this is on a $100 loan, your interest rate is 7.5 percent a week ($7.50/100). Since there are 52 weeks per year, you can multiply 7.5 percent times 52 to find out your interest rate of 390 percent
- What if you can’t pay: Most often, if you can’t pay your first loan, you will renew into a second. Another fee is usually charged, and the cycle continues and you get more and more in debt and pay more in interest.
These considerations are important in deciding whether to take an advance cash payday loan. The fees and interest may be worth it if you need the money and/or if you can’t qualify for a more conventional type of loan, but you should be aware of what you are getting into and come up with a financial plan so the advance cash payday loan doesn’t become more expensive than you can handle.