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Cash Advance LoansCash Advance Loans: Loan Sharks In Disguise? How It Works: Cash advance loans / payday loans are usually secured by a personal check. Some companies want your bank account or credit card information in addition to or instead of a check. You write a check to be cashed or agree to have an amount withdrawn from your bank account sometime in the future; usually 14 days (the standard payroll period). After completing the agreement/contract you are given an amount that is less than what you have agreed to pay. The difference is the "fee" for the loan service. And you have got your cash! Why It Works: Why is the company willing to loan you money like this? Simple, because loaning out money for these "fees" really amounts to a huge profit at your expense. For example, say you borrow $200 and the lender charges a "fee" $15 for each $100. Within 14 days you will have to pay $230 for borrowing $200. Now if the $200 keeps you from having to pay a $100 late fee or penalty on something it is probably worth it. But if you just want the money today, you are paying a high price. You are paying 15% interest for a 14 day loan. That amounts to 3785% compounded interest yearly! No wonder lenders are happy to loan you this money. If they loan you $100 and you pay them back with an extra $15 in two weeks and they loan out the $100 again along with the $15 extra you paid, and they keep doing this for one year, they will turn their $100 into $3785 by the end of the year! Maybe you should be loaning your money to them rather than cash advance loans borrowing from them. What To Watch Out For with Cash Advance Loans : * Early repayment fees. Pay off your loan early and they sock you with another fee.
There
Is A Better Way: The root problem here could be that you are getting
strangled by your debt payments. Credit cards, store accounts, installment
payments and such can eat up your income quickly. It may be time to visit
a non-profit credit counseling service or create a debt reduction plan
for yourself and avoid using Cash Advance Loans in the future. Or it could
be that you are just spending more than you make. You may need to spend
a few minutes each week and write down your expenses. Then categorize
and total them to see where your money is going. Then record your income
for the same time period and make sure that you are not spending more
than you make. Sure, everyone gets behind occasionally and may have to
resort to cash advance loans. But you need enough room in your budget
(this means spending less than what you make) to accommodate the "budget
busters" and surprise expenses that may come up. It may mean cutting back
on cable, magazine subscriptions or eating out. But last time I checked,
McDonalds did not charge a $15 "fee" for making your food. |
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