When unexpected financial emergencies materialize, most people struggle to find the extra money to cover them. For those with good or excellent credit, borrowing options are available, but if a money-based crisis happens to someone with a low credit score, the situation can be devastating. This is why cash advance loans are targeted toward people with bad credit. In many cases, it is their only borrowing option.
Cash Advance Loan Lenders Set Their Sights on Those with Poor Credit
CBAA reports that it can be tough for people with bad credit scores to qualify for a loan. When it comes to borrowing money from traditional financial institutions, most won’t lend to those with low credit ratings. For many consumers, this standard leaves them with limited borrowing choices, which is why they must turn to cash advance lenders.
Today, borrowers can apply for cash advance loans online. The application process takes just a few minutes, and many lenders approve the request quickly. Cash advance lenders typically transfer the requested funds to a borrower’s account automatically, making the borrowing option enticing.
What is a Cash Advance Loan?
According to Consumer.gov, cash advance loans are short term loans that come with a lending fee even if the loan is just for one or two weeks. These loans are expensive. For instance, a $500 loan can cost as much as $75. With cash advances, additional fees often accrue from interest and payment extensions.
Why do People Need Cash Advances?
Reports show that more than 65 percent of Americans do not have emergency savings. During a money-based emergency, they would need a short-term loan to cover a cash flow gap. If a person becomes ill and must take time away from work or when weather-related events occur and leave an individual in a lurch, then paying the bills may be impossible without a little help.
Revolving credit isn’t an option for every borrower. Building good credit takes time and resources. For many individuals, the only option for a credit card is one that’s secured with a cash deposit, and this takes advanced planning. If people who only qualify for a secured card have the cash for a deposit, then they probably wouldn’t require a loan, so while secured credit gives people a way to build their payment history, it offers little relief when financial emergencies arise. Cash advance loans can help people who have bad credit cover money-based gaps until things turn around.
How to Make the Best Loan Decisions
The Better Business Bureau reports that a bad credit rating and financial desperation can make a borrower a target of unscrupulous lenders. To avoid this, borrowers should follow a basic set of guidelines to help them make the best decision about a loan. Before agreeing to one, the Bureau suggests confirming the repayment terms. This will help the person confirm that he or she can pay the money back on time. In addition, borrowers should assess their financial situation to borrow the least amount possible. Those who are considering a cash advance should also ask if additional fees accrue for a repayment extension.
If time permits, it’s a good idea to shop around to compare the available terms and fees for cash advances. Before signing for a loan, confirm the loan conditions. According to regulations, lenders must disclose a loan’s fees, annual percentage rate and finance charges. This information will be presented to a borrower in writing.
When to Avoid a Lender
Despite the direness of a financial situation, industry experts advise borrowers to avoid lenders who recommend reporting a higher income than they actually earn. They should also turn away from those who encourage them to sign for a loan without first reading the terms of the agreement. Term changes, the request for a signature on a blank form and refusing to share copies of signed documents are other warning signs of a predatory lender.
Are Cash Advance Loans Predatory Lending or a Helping Hand?
When bad credit prevents a borrower from accessing a loan through a traditional financial institution, cash advance loans can be a useful stand in. However, since cash advance loan lenders target those with poor credit scores, financial experts often view them as predatory. Until traditional banks and credit unions change their lending practices, many borrowers must continue to seek a helping hand from cash advance lenders. To learn more about how cash advance lenders target those with bad credit, head to the Personal Money Store.