Understanding High-Interest Cash Advance Loans: What to Know

Cash advance loans provide short-term borrowing, where lenders extend high-interest credit based on a borrower's income and credit profile. The principal is typically a portion of the borrower's next paycheck. These loans charge high interest rates to meet immediate cash needs. They are also known as payday loans or check advance loans. Due to their extremely high interest rates and potential hidden fees, cash advance loans often carry a reputation as predatory lending products.

Obtaining a Cash Advance Loan

Payday loan providers, such as those found here, are typically small credit merchants with physical locations that offer onsite applications and approvals. Some cash advance services are also available through online lenders. To complete a cash advance application, a borrower must provide paystubs from their employer showing current income levels. Lenders often base the loan principal on a percentage of the borrower's predicted short-term income. Many also use a borrower's wages as collateral. Other factors influencing the loan terms include a borrower's credit score and credit history, which is obtained from a hard credit pull at the time of application.

Cash Advance Loan Interest Rates

Lenders charge borrowers extremely high levels of interest, which can range up to 500% in annual percentage yield (APR). Most states have usury laws that limit interest charges to less than approximately 35%; however, lenders fall under exemptions that allow for their high interest. Since these loans qualify for many state lending loopholes, borrowers should beware. Regulations on these loans are governed by individual states, with some states even outlawing them entirely. In California, for example, a lender can charge a 14-day APR of 459% for a $100 loan. Finance charges on these loans are also significant, as the fees can range up to approximately $18 per $100 borrowed. Although the federal Truth in Lending Act requires lenders to disclose their finance charges, many borrowers overlook the costs. Most loans are for 30 days or less and help borrowers meet short-term liabilities. Loan amounts typically range from $100 to $1,500. These loans can often be rolled over for additional finance charges, and many borrowers become repeat customers. A number of court cases have been filed against these lenders, as post-2008 financial crisis lending laws aim to create a more transparent and fair market for consumers.