Everything seems fine one month but a few months down the road and you hit a large pothole with keeping up with your bills. The thought of being behind with your bills is hard to handle. You need a little help but friends and family are unable to help you at the present time. Where do you turn to for this quick fix? You could ask a bank/credit union for a perosnal loan but the time frame of your need of the money is an obstacle with the lengthy loan process. You want to stay away from using your credit cards or sadly these cards are maxed out or in collections or you don’t have a good credit history to receive a personal loan from a bank. Your only option then is to turn to those Cash Advance Loans that you always see on TV or in online advertisements. Many people in the United States turn to these places but most are unaware of the possible risks that come with these loans.
The following are some of the risks with Cash Advance:
1. Fees
The Annual Percentage Rate (APR) for each loan can range between 390% to 780% if the state you are living in doesn’t have a minimum (APR) cap set in place to protect the borrower. This means that the Lender can charge $15 to $30(per week) for a $200 loan on a 2 week loan. These fees can add up to be more the longer the loan is open. The max amount of days for these types of loans is 45 days.
2. Payment Plans
The lender’s payment plans are setup to keep the loan open for as long as possible in order to collect more fees from the borrower. So let’s say that a loan is for $300 + $30(fees per every 2 weeks). The lender takes out $90 for the first payment based on the average amount of the loan. This allows the lender to have the loan open for at least another 4 weeks max even if the borrower is able to pay the loan off in full. This is where the borrower must call the lender and state to them that they are to take the full amount out of his bank account to fulfill his obligation. This is where the lender tries to pull a fast one but the borrower can stop this right in it’s tracks.
3. Rolling Over Loans
If the borrower is having troubles making payments on the loan or the repayment of the loan is leading to them short of cash once again. They have a chance to roll over the original loan to a newer loan that is higher than the original one. This allows the borrower to pay his/her bills and some of the original loan off but leaves them with a bigger loan left on their account. Rolling over loans also gives the lender move time to charge more fees since the loan has been extended for a possible 45 days. The average borrower rolls over a loan approximately 7 times which leads to an APR at 1000% by the time the full loan is paid off.
4. Collection Techniques
Cash Advance Lenders have some of the toughest collection techniques in the business. Not all of them are legal or correct but are effective in getting the borrower to pay his/her loan if they are missed a payment. Threats of jail time for bouncing checks have been used even though this can not happen. The lenders are looking out for their best interest and would love to charge as many fees as possible but do see that the more fees applied to some loans will cause the borrower to default on the loan and possibly lose out on their profits. They know how to push the limits without going over board but sometimes they don’t. As a borrower you must know your rights so the lender does not over step his boundary in their attempts to collect on a loan.
To avoid these issues, we ask borrowers to read all the terms and conditions and even the fine print to make sure that they agree to all terms so they are not surprised by anything. Be in contact with the Lender to make sure everything is in order with payments when they are due and if/when you can cut the loan payment short with paying in full.