A short-term cash advance is an unsecured personal loan that is available to borrowers with very little documentation or collateral required. The key feature of a short-term cash advance loan is the relatively short repayment period. Most cash advance companies require the customer to repay the amount borrowed, plus interest and any applicable fees, within a two week period.
The purpose of these short-term loans is to provide a customer with cash until the next payday, or within two weeks. Many consumers who choose to borrow from a cash advance company do so because of an urgent and immediate financial need. Many companies will provide the cash to a borrower within 24 hours, providing a quick and easy way for consumers to obtain the money they need.
The consumer looking to obtain a short-term cash advance has many options to choose from. Most larger cities have a variety of cash advance companies and customers can apply for a loan from lenders online. While specific requirements may differ between companies, many short-term lenders require borrowers to meet these requirements:
• Borrower must be 18 years of age or older.
• Borrower must have a current checking account.
• Borrower must be currently employed and able to show proof of income.
• Borrower must earn a minimum amount of income per month.
• Loan amount generally cannot exceed a pre-specified maximum.
Once a customer has selected the lender, he will most likely have to complete an application along with providing the documentation listed above. Many short-term cash advance companies do not require a credit check for approval and as long as the lender’s requirements are met, the loan is approved. This makes short-terms loans an attractive option for borrowers with little or negative credit history. Most lenders deposit the funds directly into the borrower’s checking account, although some lenders may offer other options such as directly providing the borrower with cash, giving the borrower a cash card or sending the funds through a money wiring service.
At the time the loan is consummated, the borrower generally agrees to one of two methods of repayment:
• The borrower provides the lender with a personal check for the amount borrowed plus interest and any applicable fees. Once the repayment period has ended, the lender processes the check for payment.
• The borrower agrees to allow the lender to withdraw the amount borrower plus interest and any applicable fees directly from the borrower’s bank account once the repayment period has ended.
If a borrower is unable to repay the loan within the initial loan period, most lenders will allow a customer to extend the repayment period with additional interest charges and fees added on to the loan. While the consumer may consider the option for an extension as a positive, it is this extension feature that also makes short-term cash loans a potential liability. When the loan is extended, the lender will generally compound the interest and fees that are due on top of the original loan balance. The Center for Responsible Lending reported in 2006 that the average recipient of a payday loan pays back $793 US Dollars (USD) for a $325 USD loan. The borrower who continuously extends the loan may be trapped in a seemingly endless cycle of an ever-increasing loan balance with the inability to pay it off.
Short-term cash advance loans should be considered only in emergencies and should only be utilized by borrowers who are able to repay the loan within the original repayment period. The consumer who chooses a short-term cash advance should ask for and carefully review a disclosure from the lender detailing the specific terms of the loan and the true cost of obtaining the loan. If a lender is unwilling to provide this information, the consumer is advised to find another lender who will provide all of the necessary disclosures.