Why Check Advance Loans Should Be the Last Option
Waiting for a paycheck every month can be a bit worrisome at times. However, the truth is that most of us wait for it impatiently, due to little or no savings. Since our school days, we are taught to save money so that we can use it during an emergency. While this is a wise advice, it's often hard to sensibly practice it. That's one of many reasons for why a check advance loan could be a saving grace!
With rising expenses and steady paychecks that do not boost at the same rate, several people find it tough to meet their basic needs. If an emergency strikes during such a tough time, you need some means to handle it along with the short-term financial requirements. One such means might be a check advance loan, which is also known as a payday loan or an instant cash advance.
Overview of Check Advance Loans
As the name suggests, a check advance is associated with the paycheck that you are likely to receive next. It's a loan till payday. After assessing the former pay records, the concerned lender decides to give you a small amount for a very short term. You are supposed to repay it on or just after the next pay day.
There is no long-term lending. Instead, the lender just advances a portion of your paycheck by charging you a small fee. You repay the sum along with the fee the moment you get your paycheck.
The Need for a Check Advance
There can be many reasons for seeking such an advance. For instance, if there is a tap leakage in your home, you simply cannot wait till your next check to repair it. This is one situation that demands a payday loan. Similarly, you might have an air conditioner repair, which you cannot delay if it is summer or a car repair if you need it for going to office daily.
Another reason why you may require a check advance, is a pending bill whose due date is tomorrow or the day after tomorrow. This is when you look out for sameday payday loans. Similarly, you might need a loan to pay off a past-due electric bill to avoid late fees or reinstatement fees in case the power is cut off.
Annual Percentage Rate (APR) of Charge for a Loan till Payday: First Reason for It Being the Last Resort
There are two main features of a payday loan: Small amount lending and APR, which is different from interest rate and other fees. Unlike a traditional loan, you come to know upfront how much this loan is going to cost.
For each loan amount you request for, a payday lender enforces a service charge, which is known as APR. At present, the industry average is $15 per $100, which if extrapolated, comes to 391% as APR for the whole year. Well, this makes payday loans perhaps the most expensive ones although they are meant for a short period (generally for 15 days). On a credit card, this APR is not even 50%.
Due to such high service charges, same day loans are illegal in almost 18 states in the USA. In the other states, the interest rate, APR, and the borrowing sum tend to differ from one state to another.
An APR is not the same as the interest rate. The latter indicates the current rate of borrowing. On the other hand, an APR denotes the overall interest payable on a yearly basis, which is averaged over the loan's term. It's in addition to other service charges as well as fees.
An APR tends to vary as per the type of loan requested but it's usually higher than an interest rate. This is why taking a check advance loan till payday should be the last resort, as it costs you more than any other type of loan.
More Reasons why Payday Loans Should be the Last Option
There are payday loans available online for bad credit. These loans are lent without a credit check, due to which borrowers with a bad credit score or history can get instant cash. However, these loans do not help in increasing the credit score or history, as repayment isn't recorded by any of the primary credit agencies.
On the contrary, if the borrower fails to repay on time, the lender may choose a collection agency to obtain the loan back. This negatively affects your credit. So, this is another risk you take by borrowing a check advance.
Another risk is an overdraft. The lender shall deposit a post-dated check on the due date even if your account does not have sufficient money. This can trigger an overdraft, which is certainly not a free service. In this situation, it's better to work on an extension date instead of rolling over the loan by taking another loan to repay it.