Cash Advance Loans – Nothing Wrong With It

Most people have a negative perception about payday cash advance loans. There has been a lot of media coverage for the last couple of years that seems to emphasize on the negative points of these products without exploring the benefits conclusively. The bad press that the cash advance loan industry received and is still receiving is very much biased and should not be relied on. In this article we will look at the common faults that are highlighted and also balance the argument with the inherent benefits that the service provides to borrowers.

The first negative point that you hear about cash advance loans is that they are expensive. For a $1000 loan, you may be charged $50 after a month. These are normally the quantum that cash advance loans go for. Rarely does a cash advance loan exceed $1500. The negative press will tell you that this loan is equivalent to a 60% p.a. loan from a bank if you look at it on a per annum basis. Although this is technically correct, it is a big mistake to value cash advance loans in this manner.

It is first a mistake because cash advance loans are designed to be short term loans which are to be cleared in less than a month. I have yet to see a case where someone takes out loan after loan for a year. It simply does not happen in real life. If you look at it as a product that it is indeed to be, namely a loan with a duration not exceeding one month, the interest rate is actually only 5%. If you look at it the proper way, these products are actually relatively cheap for the convenience they offer.

In the grand scheme of things, $50 to pay for emergency cash in your bank really isn’t that expensive. For most of us $50 is certainly much more affordable than a negative post on your credit statement. It is certainly cheaper than to have to pay for late fees or to incur huge penalties just because you do not have to that extra bit of money in your account to settle your outstanding debt. It is also cheaper in comparison to the face that you might lose from asking your friends or colleagues to lend you some money to keep your ends tied.

In addition to the “price” of cash advance loan products, the negative media has also concentrated on the rigidity of these products. We actually think that this is a benefit. The rigidity serves two purposes, the first and the most importantly is to enable companies to not have to go through severe and often times crippling rules that govern larger lenders. With this, many smaller companies can be set-up and allows this service to be rendered to more people. The second purpose is to limit the exposure of clients to excessive interest rates. Although clients can request for a “roll-over” if they don’t have enough money to settle their current tenure, it isn’t as easy to do as most would think. It is up to the lender to approve or decline the request and the borrower absolutely has to make the request. There is no keeping quiet and hopping they will roll it over for you.

There has been much finger pointing that the cash advance loan industry is also set up to take advantage of people who are in the lower income group. Although it may seem to be the case initially the true view is actually obscured by the fact that the largest cash advance loan amounts are only $1500. It is generally only the lower income groups that would need a loan of such a small amount. Higher income groups would generally require larger loans which cash advance loan companies simply cannot cater for. It is also proven that there are higher incidences of financial mismanagement amongst the people of lower income groups and this can also make it seem that cash advance loan companies are trying to take advantage of them. The fact is that cash advance loan companies are providing a service and it is very much up to the customer if they want to use it. The terms are clearly stated and are very easy to understand unlike some loan products from larger finance institutions.

Overall, if cash advance loans are used in the way that they are intended to be, as a short term “cover” to tie loose ends then they are certainly a product that is very useful and beneficial. It is only when the products are abused or used in an incorrect manner that they will start to cause problems. This can be said about any financial product and should not be solely the fault of cash advance loans. It is certainly safe to use them, just be sure that you use them properly.


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