If this is your first time to take out a cash advance, it is highly understandable that you try to find information before you decide if this way of borrowing money is something that would work for you. Along with this, you can also see that the amount of information that you can find online is actually plenty and it might overwhelm you during the first time, making it hard for you to determine which information is true and which is not.
Many people are becoming skeptical about the cash advance industry and they start believing myths that are actually very wrong. Here are some usual myths that you would hear about cash advances and reasons why you should not believe them.
Some people say that cash advance loans usually charge people as much as 300% in interest rates. The speculation regarding the amount of interest rates charged is growing.
For people taking out a cash advance for the first time, this is very heard to believe but usually enough to scare them off. First time borrowers have to understand that when they hear things such as these, it is usually because the APR rate is what is being discussed. You have to be knowledgeable about the aspects of payday loans before you can decide on what to believe.
The APR is the annual rate of interest – meaning that this is what you pay for the entire year. Cash advance loans do not usually work like this. The length of time between when the borrower receives the cash borrowed and when this is paid back is usually only between two and four weeks. There is a law – the Federal Truth in Lending Act – that states that all lenders have to disclose the entire terms that the loan is subject to. Because of this, the overhead fee, the interest rates, and the APR for the whole loan is also shown.
Cash advance providers will charge you a certain rate of interest for each $100 that is borrowed. There are times when this could go as much as $15 for each $100 borrowed, you will never end up paying $300 for the loan since the entire loan that you can take up is only up to $3,000. The rate of $15 per $100 in already a really high rate if you compare cash advance options. If you wish to find out how much you will pay in interest rates, go and talk to your lender.
Some people will also tell you that taking out a cash advance loan will put you into a cycle of indebtedness. People say that these loans are there to really trap you into borrowing money over and over again. This makes the lenders earn more money since the interest charges tend to pile up. In the same way, people also say that payday lenders usually lower the rates that they charge or give you easier terms if they want to trick you into borrowing money repeatedly. But this is far from the truth.
States have certain regulations when it comes to lending money. These regulations make it hard for people to roll over the loans. If this is the case, you cannot even begin the so-called “cycle of indebtedness”. There are states that let you do a certain way of rolling over the loan but there is still a limit to keep people from falling into the “cycle”.
These lending regulations, no matter which state you are in, protect the borrowers from lenders taking advantage of them in any fiscal way. Along with this, you as the one borrowing the money have a sense of being responsible for paying your debt. You have to really talk to your lender and ensure that you understand everything and that you are given the terms that you can follow.
Another myth about cash advance loans is that the lenders usually exploit people with low income. They are usually the ones that need the cash advance and the lenders, when doing business with them, are given a good chance to charge all the fees that they want to because the low income families will be willing to pay fro the added charges just so they can get the cash sent to them faster. However, this is not the case when taking out a payday loan.
Prior to you applying for the cash advance, you have to give the lender proof that you are employed. Aside from this, the lenders require that you earn a certain level before they can approve your loan. Most lenders will require that the borrower earn a minimum of $1,000 each month. This is one way to prove that cash advance providers do not actively look out for low-income households that they can take advantage of. They only give their services to people who seek cash fast but at the same time are able to give back the money that they borrowed within a certain period of time.
You can see from this that cash advance providers target those who are in the middle class or those who are working. These people earn about $12,000 annually. The primary goal of cash advance lenders is to provide a way for these people to meet their urgent financial needs right away.
One other myth is that cash advance lenders profit out of the extremely high interest rates that they charge. This might just be one of the most commonly misconstrued fact about the industry of cash advances. Because lenders are there to offer financial help fast, people expect them to charge exorbitant interest rates so they can turn a profit. But in fact, if you compare the cost of cash advances versus other forms of lending, you may see that payday lenders actually earn less this way.
These short-term nature loans only provide lenders with a minimum profit but they are very expensive to give out and sustain given the demand for them. There is a study that says that most cash advance providers only turn a profit of about $3.57% on average. Traditional banks and other commercial lending firms make more with their annual profit of 13%.
Finally, you will hear people say that cash advance lenders charge you fees secretly. Since the process of applying for and getting approved of these loans are fast, many expect there to be hidden charges to help the lenders turn a higher profit. But keep in mind that the Truth in Lending Act exists. This law requires lenders to tell the borrowers about all the terms that the loan is subject to.