A payday advance can help a person alleviate any financial burden he may need to address before his next payday. An emergency like this is all too common, especially in this time of economic turmoil, so services such as payday advance loans may be able to extend a helping hand to you in your time of need. Just be sure to have the money to pay back the loan later, lest you start to incur months of outstanding interest and debt.
Acquiring a payday advance loan can be as simple as walking into your nearest bank or other financial lending institution and filling out a few forms. The power of the internet has also made applying for a payday advance much easier, as a person can now fill out an online application form and wait to be approved from the comfort of his or her own home. The requirements for getting a payday advance have also been flexed to meet people of any financial situation and credit rating.
Defining a Payday Advance Loan
A payday advance is a form of loaning where a person is allowed to borrow money to replace his or her paycheck before his or her next payday. The person is able to borrow this money to cover any expenses, financial obligations and debts that cannot be settled any sooner, and pays back the cash advance during his or her next payday when the paycheck comes on the usual date.
The payday advance loan is sometimes referred to as a cash advance. While this payday advance is typically applied for in person at loaning institutions such as pawnbrokers, larger banks that have established websites may permit borrowers to apply through online forms or through e-mail and fax. Depending on the lending institution, other requirements such as your credit rating, criminal records, identification or other documents may need to be submitted along with an application.
Legal Myths Surrounding a Payday Advance
Many people on both ends of the loaning process have been subject to deception and scams since the concept of loaning was implemented. To prevent abuse, many governing bodies have established laws and standards that both the lender and borrower must abide by in order to be eligible for payday advances and other loans. These laws can vary from state to state, as well as the country one resides in.
Typically, payday advance loans have usury laws and regulations that prevent excessive and unreasonable interest rates that lenders may charge a borrower. Some states also limit annual percentage rates that a lender can charge, while others make these laws so strict that payday advancing is banned entirely.
Fees and Interest Rates
The short term nature of a payday advance loan can also be seen as one of the reasons why payday advance loans are too risky to be legal in some states. Short term loans like a payday advances can often have very high interest rates involved when the borrower does not meet the maturity date of the loan, and can put the borrower in very long periods of debt. Some states have put caps on interest rates that are too high for some payday advance institutions to meet, effectively making operating such a business illegal.
Payday advance institutions defend the higher interest rates by pointing out that the processing costs involved in a payday advance are not all that different from regular loans. As the loan is a short term loan, conventional interest rates at lower amounts will not end up profitable for the institution, so as the length of the loan is much shorter, the interests must be higher to be able to make a profit. The payday advance loan still poses a substantial risk to the borrower, however, so alternatives to payday advances may also be sought out if other options are available.
Independent payday advance lenders do not compare their fees and interest rates to more mainstream institutions like banks and larger loaning companies. Instead, fees and interest rates are compared to the late payments, overdraft, and penalty fees that a borrower may incur when he ends up paying the loan back late.
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Payday Advance Alternatives
The risky nature of a short term loan like a payday advance may make other forms of borrowing money attractive to the prospective borrower. Payday advances, however, may still be found at lower interest rates at independent financial institutions such as credit unions and pawnbrokers, but these institutions may have stricter terms of borrowing and less forgiving maturity dates in order to protect their investments.
That said, credit unions have fast been gaining popularity in both rural and urban areas alike. These member-run institutions promote synergy and community support within the union, and can often be forgiving when taking out a payday advance or other kind of loan. Other fees such as the interest rate may be substantially lower in these credit unions, but it can sometimes vary depending on your state, region, or the credit union itself.
Sometimes, simply borrowing money from a close friend or family member can be a better way to alleviate a sudden financial obligation, as well as bypassing the absurdly high overhead fees and interest rates that a payday advance can so often have. If you are on good terms with your boss, then simply asking him or her to give you your paycheck in advance may also be a viable alternative to a payday advance loan.