Understanding the Terms, Fees, and Interest Involved in Cash Advance Loans
Cash advance loans help so many people who find themselves in a financial squeeze. Your car breaks down and leaves you stranded with no way to get to and from work. You need medical treatments and lack enough money for your deductible. Your roof starts leaking. Your furnace quits in the dead of winter. When you need money and your savings is lacking, a cash advance loan is a quick solution.
The problem with cash advance loans is that people are in such a hurry, they often skim the terms rather than really read all of the fine print. They don’t understand some of the terminology, and the urgency of the situation keeps them from asking questions. Don’t get swept up in a loan that you do not understand. Here’s a guide to the terms, fees, and interest you face with a cash advance loan.
Cash Advance Loan Terms
Every company is different due to state laws and regulations. A cash advance or payday loan is not meant to be a long-term loan. It’s called a payday loan because you pay it back at your next payday. The term of the loan or loan term is the length of the long. It’s how long you have until you must repay the amount you borrowed, fees, and interest. If your loan term is a 14 days, you have 14 days/2 weeks. If it is a 21-day loan, you have 21 days or 3 weeks.
Cash Advance Loan Fees and Interest
Fees for taking out a cash advance loan vary from state to state. Again, this is due to state laws and regulations. A loan fee is charged to help cover the paperwork, salaries, and other costs a company faces when loaning you the money. According to the FDIC, the median cash advance loan fee and APR in 2008 came to $53 and 391% respectively.
If you live in Vermont, the most you can legally borrow is $450. The payday loan fees charged are often 10 percent of the loan amount, so if that’s the case, when you repay the amount, you pay $450 plus a $45 fee. This puts the annual interest rate at 261%. If you live in California, the maximum amount you can borrow is $255 and one company’s finance charges for that loan amount come to $45. That brings the APR for this cash advance loan to 460%. When you repay the $255, you add the $45, bringing the amount you repay to $300.
Note that if you repay your cash advance loan early, you may receive a refund of the interest and fees you paid. If you fail to pay back the money on the due date, you can roll the loan over into a new loan. To do this, you will pay additional fees and interest. These amounts are determined by the company, who abides by state laws. Many times, the additional fee involves doubling your original fee. If you paid $50 to take out $500 and fail to pay it back on time, you now owe the original $500 plus $100.