Bad Credit Cash Advance Loans

Cash advance loans, for bad credit borrowers, may be the only opportunity to finance the cost of living. In between pay checks, utility bills, cell phone bills, and rent or mortgage payments, all come due at the same time. The result is that there is little opportunity to find the money necessary to make good on bills, and cash advances become the only solution.

What is a cash advance?
Cash advances are very short-term loans designed to provide people with the money they need until their next pay check. Since most people are paid every two weeks, or even every four weeks, in some cases, there is too much time in between getting paid and having to pay for routine bills. When people are in a cash crunch, they can turn to cash advance companies, who will write a loan against their next paycheck.

Cash advances are a very expensive short-term financing solution because they are very risky for the lenders. Estimates suggest that as much as 10-20% of all loans default (meaning the borrower doesn’t pay back the loan, or simply can’t pay back the loan) which is a cost that is passed on to all the people who do pay back their loans. As such, cash advance companies usually charge an annual percentage rate, or APR, equal to that of a credit card, plus monthly fees for each cash advance loan.

Bad credit cash advances
Cash advances are only partially based on a borrower’s credit score. More importantly, a lender wants to know how much you expect to earn from an upcoming check, and whether or not your next pay day will be large enough to cover the loan amount plus interest and fees. A good credit score borrower with a paystub that isn’t going to be enough to cover the debt is less likely to get a loan than a borrower with a bad credit score that has a decent check coming to them before the loan is due.

For people with severely low credit scores, cash advances are often the only solution. Consumer credit—credit cards, car loans, home loans, and others—is often granted based on a credit score entirely, with little emphasis put on total income ratios. This is because the lender is loaning the money for a long time, so having the ability to pay your bills for years on end is very important. Irregularity is the key to cash advance companies, so credit scores are only a minor detail.

Be wise with cash advance loans
Cash advance loans are the most expensive borrowing mechanism. To evaluate loan terms, and to know how good of a deal you actually think you might get on a payday loan, consider the following:

1. EAR – The effective annual rate is a calculation that will tell you how much you will pay annually after all fees, expenses, and interest is assessed on the account. While most payday lenders will advertise their APR, or annual percentage rate, this rate is far lower than the amount of total costs you will pay on your payday advance. Never rely on the APR to tell you as much as the EAR, as the EAR is designed by law to include all possible costs of borrowing. The EAR, as you can imagine, often breaks 1000% per year, requiring a borrower who gets an advance of $1,000 to pay back $10,000 if the advance isn’t paid back quickly.

2. Length of time – always consider how much time you have to pay back the cash advance. A 14-day advance until next payday may sound appetizing and achievable, but it pays to be honest in whether or not you’re going to borrow and whether or not you can pay it back. If you think you’ll have to cut corners to meet 14-day loan terms, then look for a 28 or 30-day loan.

3. Alternative sources – Only go to a cash advance lender after all other sources of credit are exhausted. Family, friends, and credit cards will all charge you far less than a cash advance loan, and won’t leave you in financial hardship should you require more time to pay off the debt. Cash advances are for emergency lending only, and should not become routine.

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