A paycheck advance, also called a payday loan, is used by a person who needs money before his next pay period. The funds can be secured from a lender that offers a cash advance loan or one that specializes in short-term loan funding. One of the main benefits of a paycheck loan is that collateral typically isn't required. One of the biggest drawback is the interest rate for this type of short-term financing, which can be substantially higher than the rate for a standard personal loan.
Paycheck advance loan companies can often be found by using an Internet search engine. The borrower should be certain the lender is reputable and that the paycheck loan terms are clearly defined. He can often apply for the loan online and receive an approval without ever having to leave home. If the borrower does not want to obtain a loan from an online source, a local lender in a brick-and-mortar storefront can usually be used for the cash advance as well.
The approval process for a safe paycheck advance is typically faster than that of a conventional loan. The paycheck lender only needs a few items to make a decision on the loan request. The borrower is usually only required to give the lender a recent pay stub, and to complete a short loan application which includes his banking information. The lender will not perform a credit check in most cases, which is beneficial to a borrower who has bad credit. If the application is approved, the emergency cash advance is granted.
The interest rate on a paycheck advance is high because of the risk to the lender. The potential for loss is greater since they do not perform a thorough analysis of the borrower’s credit and employment history. Borrowers often are willing to pay the higher rates to get the money faster as well.
The borrower must payoff the paycheck advance on or before the due date, or he could have a large penalty. If the borrower is unable to payoff the full amount, the lender may offer the option of extending the loan. Interest typically continues to accrue in this case, which can make the total payoff greater than the initial loan amount.
The borrower may want to apply for a personal loan from a bank or credit union to avoid having to extend the paycheck advance. The paycheck loan normally is used as a short-term solution to a cash flow problem. If the borrower determines the problem will take longer to resolve, he may want to use collateral for a loan to obtain more favorable repayment terms.