Be Cautious When Taking Out a Cash Advance Loan

Has Christmas left you short of money? Need some quick cash? Getting a cash advance may be the answer, but beware, there are risks involved and you need to know exactly what you're signing up for.

Taking out a cash advance requires little on your part. All you need to do is prove you have a bank account and a job with a minimum monthly salary and the money is as good as in your bank with the cash being available in less than one day. However, money that comes this easy also comes with a few red flags and warnings.

Here’s what to look for:

Maximum Loan. How much can you borrow? Most payday loans have a maximum of $1000 or $1500. Consumer advocates warn against taking out a number payday loans, particularly at once. Not only because the fees you’ll be paying are expensive but because many banks will close your account if you bounce too many payday loan checks.

Most payday loans are paid back by the lender cashing a predated check that you write. If this money isn’t in your account when the loan comes due, the check will bounce and your bank will make record of it. If you’re taking out several payday loans to cover a debt or payment, and the funds aren’t available then the bank can close your account, which means it may be difficult to get another bank account.

Term. How long do you have to pay back your loan? Standard loan terms range from one week to two weeks. Make note to find out exactly when the loan is due and your check is going to be cashed so you can make sure you have money in your account.

Fees. How much is your loan going to cost you? The standard rates seem to range between $30 and $40 per $100 borrowed. That means that if you borrow $100 you owe $140. On top of that, if you’re unable to pay the loan back when its due you may owe significant fees. Find out what these fees are before you sign on the dotted line.

Contract terms. Some lenders have lots of small print. Read the small print. Many online lenders have a policy where they automatically deposit cash into your account every month, and they automatically deduct that cash, plus a fee, every month. Make sure you’re not signing up for one of these loans or you’ll be paying your lender on a monthly basis for loans that you do not need and getting out of this loop can be difficult.

Because payday loans are so expensive and there are inscrutable lenders out there, it may be helpful to consider other options.

• Looking to local community-based organizations may make small business loans to individuals.
• Asking your creditors for more time to pay your bills. Find out what they will charge for that service - as a late charge, an additional finance charge or a higher interest rate. This may be significantly less than what a payday loan will cost.
• Find out if you have, or can get, overdraft protection on your checking account.
• If you need help working out a debt repayment plan with creditors or developing a budget, contact your local consumer credit counseling service.
• Look at the possibility of obtaining a credit card. The cash advance fees and interest rate may cost less than a payday loan.
• If you decide you must use a payday loan, borrow only as much as you can afford to pay with your next paycheck and still have enough to make it to the next payday.

Being short on cash is never fun and it happens to millions of people every day. Examine all of your options, read the fine print, and determine if a payday loan is your best option.

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