Millions of Americans are struggling to make ends meet in today's turbulent economic environment.
And despite recent government interventions aimed at loosening up credit restrictions among the bank industry, many consumers still find it difficult to secure even a short-term financial solution.
For those who are unable to acquire an advance from their bank, a possible option is a cash advance, also known as a payday loan.
Payday loans are short-term solutions that provide a smaller-than-usual repayment window. While a home mortgage might span 30 years, a short-term product should be paid off within 14 to 31 days - essentially by the borrower's next payday.
To acquire one, the borrower writes a personal check for the amount borrowed plus any finance charges. The lender then holds the check until the next payday, at which time the balance and finance charges must be paid in one lump sum.
To repay a lender, the borrower can pay the lender directly and redeem the check, allow the check to be deposited by the lender or pay additional finance charges to roll the balance over for another pay period.
These options also are available online, through which the borrower provides his or her banking account information. The amount borrowed is typically deposited directly into the borrower's account.
While they serve as a convenient means to acquire short-term funds, they do have some risks that should be considered carefully. The primary risk associated with this financial product is the high annual interest rates tied to them, which are paid as the processing fees.
A typical borrowing amount could come with a 400 percent APR, with finance charges ranging from $15 to $30 just to borrow $100. In contrast, a smaller company would typically charge an APR of only 24 percent to 48 percent and would allow the amount owed to be paid off in small installment payments.
Overtime, the cost difference between these two options is significant, which is why they should be used for emergency purposes only and should be paid off as soon as possible.
One of the advances in the payday industry is the addition of the cash advance debit card, also referred to as a prepaid debit card. Instead of providing the borrower with actual cash, the lender deposits the funds on a card.
Using a prepaid option comes with several advantages:
While there are several advantages of using these, they do come with their own set of fees that should be considered. These fees can include:
Before acquiring a prepaid debit card, it is important to carefully review and fully understand all of the included fees.