Cash advances seem like a great way to fill a gap in your budget – they’re quick, easy, and you can pay them off with your next paycheck. But these small, short-term dollar loans have a lot more to offer than you might think.
Answer these five questions before applying for a prepayment loan so that you don’t end up in an even bigger financial situation than the one you started with.
1. What is the interest rate?
Cash advances are a kind of short term loan without a credit check. In many ways, they are essentially the same as a payday loan. With an average principal of a few hundred dollars and an average repayment period of two weeks, they are nothing more than an “advance” on your next paycheck.
However, cash advances also have significant drawbacks: they cost much more than a traditional personal loan or even other types of bad loans. Although each loan you get when you have bad credit costs more than a regular loan, the high price of cash advances should interrupt you.
2. Can I afford to pay for this?
If you cancel your prepayment on the original due date, the amount of money you pay for interest is reasonable. An interest rate of 15% may be a little higher on a personal loan, but if you have bad credit, that 15% is fine. Nevertheless, you really need to ask yourself if you can afford this loan or not. Instead of looking at the interest rate, consider the amount of the payment.
3. Will this lender check my repayment capacity?
When a borrower receives a prepayment loan that he cannot repay, he is often faced with the choice between two outcomes, neither of which is good. If they are in a country where the practice is not prohibited, the borrower can extend their loan. This means that they make a nominal payment which usually only covers the interest due to extend the term of the loan. This new loan term is associated with a new interest charge that doubles the cost of your single advance.
The other way for borrowers in such situations is to pay off tomorrow, pay off the first loan, then turn around immediately and take out a new one. In many ways, it is no different to be back tomorrow than to make a loan. Borrowers always pay more and are still in debt. This can trigger a process known as the debt cycle, in which a person spends more and more money on interest and other fees when in reality, they are never close to debt. This cycle can be particularly violent with payday loans and cash advances.
4. Does this improve my credit rating?
It is quite easy to answer this question. When it comes to short term loans without credit checks and cash advances, it will be difficult to find one that will improve your score. Although almost all traditional lenders and credit card companies provide payment information to credit bureaus, the practice is less common with unsecured lenders, particularly those offering short-term products that are paid for.
And don’t just do an occasional Google search. Consult the opinions of your customers on credit platforms and social networks. Go to their BBB page and see what types of complaints have been made against them and if they have been resolved. Taking a small dollar prepayment loan seems like a big deal, but the risks involved are greater than you might think.
