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Cash advance – an alternative term for a payday loan?
Is cash advance just a payday loan under a different term? In order to get an answer, we must first understand what a cash advance is. A cash advance is a service that credit card companies and insurers offer where you are allowed to withdraw cash up to a certain stipulated limit from an ATM or a bank using your credit card. A cash advance is characterized by a couple of unique features:
- Interest rates are higher than those of a normal loan.
- The interest starts to compound as soon as the cash is withdrawn.
Cash advances come in two main forms: credit card cash advance and payday loans.
Credit card cash advance
Credit card cash advance lets you use your credit card to get the small loan you need. The repayment is done gradually and interest compounds as soon as you withdraw the cash. Like all other types of cash advances, the interest rate of a credit card advance is much higher than those of normal loans.
Another type of cash advance is the payday loan. This is quite different from a credit card cash advance. A payday loan is a small loan which you are required to pay back after you receive your next paycheck. Unless you decide to extend the loan tenure with the lender, you are obliged to repay the full payday loan amount by your next payday. The interest rate of payday loans is quite high and can go up to about 100% of the loan amount. Extension of loan tenure means that interest will continue to accumulate until full repayment has been made. Similar to a credit card cash advance, applying for payday loans also require proof of employment such as employment records or paychecks from previous months.
How to get a payday loan?
You will need to approach a reliable and credible payday lender. You then submit proof of employment and source of cash. As mentioned earlier, this could be your employment record or previous paychecks. After that, you will write a post-dated check detailing the loan amount and fees charged by the payday lender. The payday lender will then deposit the loan amount into your bank account within 24 hours.
If the money borrowed isn’t repaid on time, the payday lender will encash the post-dated check to recover his money. If your account doesn’t have enough money and causes the check to bounce, you will have to pay a penalty, together with the outstanding loan amount and the growing interest. This can spiral into a very challenging situation for you should you are experiencing major financial problems in the first place.
Nowadays, payday loans can be easily found online. The lenders have a very organized system which ensures the application and approval process take place smoothly.