7 Reasons Cash Advance Loans Remain Wildly Popular
Cash advance loans, which are sometimes referred to as payday loans, are short-term loans that are typically due on the borrower’s next payday. In recent years, lenders offering these loans have faced increasing criticism from the Consumer Financial Protection Bureau and other agencies, including the Federal Trade Commission. Despite the negative publicity, however, cash advance loans remain extremely popular.
Why Cash Advance Loans Are Popular
People seek cash advance loans online or through storefronts for a variety of reasons. Sometimes, they need to have an appliance repaired, take a family member to the doctor, have their only source of transportation repaired or help a relative. They may need the money to keep the electricity from being disconnected, prevent a bounced check or avoid a late fee. Regardless of why they need the money, however, many borrowers are turning to cash advance loans for the following seven reasons.
1. Borrowers Like the Convenience
In some states, borrowers can visit a local lender’s store to request a cash advance loan. These local stores tend to have extended hours that allow borrowers to avoid taking time off from work or struggling to arrange their schedules to accommodate the lender’s hours of operation. Furthermore, many lenders now offer cash advance loans online, allowing borrowers to submit a loan request at any time of the day or night, including weekends and holidays.
2. Borrowers Like the Speedy Decisions
When faced with a financial crisis, waiting for a loan decision can aggravate the stress that borrowers are already suffering. An loan request submitted to a bank or credit union can take several days for processing, leaving borrowers to worry about whether the loan will be approved. Decisions on cash advance loans online as well as loans made through a physical store can often be made in minutes; decisions are virtually always made no later than the next business day.
3. Borrowers Like the Confidentiality
Not everyone enjoys having others know about their financial situation. According to an article appearing in The New York Times, many borrowers prefer taking out a cash advance loan to asking family or friends for the money. Borrowers also tend to avoid asking an employer for a salary advance; even if the employer might be willing to offer an advance, borrowers sometimes feel that this is sharing too much information or that it is placing them in the employer’s debt. People who request cash advance loans online often cite the privacy issue as well; they do not risk being seen entering a lender’s store by their friends, family members or colleagues.
4. Many Borrowers Have Impaired Credit
The borrower’s credit history is not an issue for most lenders offering cash advances. Whether their credit history is stale, nonexistent or impaired, they can likely be approved for a cash advance loan. In most cases, all that is required is a source of reliable income, a checking account and proof of identity. To secure a loan from a traditional lender, borrowers may need a good credit score.
5. Few Americans Have Adequate Savings
When faced with an unexpected bill of $500, 63 percent of all Americans could not cover the expense from their savings, according to Forbes.com. Over 56 percent have a combined total of no more than $1,000 in all savings and checking accounts. For families with incomes of $25,000 or less, $1,000 represents a full month’s income. However, even households earning substantially more frequently have little or nothing saved to cover emergency expenses.
6. For Many Borrowers, Alternatives Are Few
Several consumer groups offer advice on alternatives to cash advance or payday loans. The suggestions include such “helpful” tips as borrowing from a bank, using a credit card to pay for the unexpected expense, borrowing from family members, tapping into a retirement account, taking a loan on a whole-life insurance policy and negotiating a lower payment with creditors.
There are two problems with these alternatives. The first is that many borrowers do not have these options available; they may not have the credit necessary to obtain a credit card or a bank loan, they may not have a retirement account, their family members may be in even worse financial shape and they may not carry a life insurance policy what allows them to borrow against it. The second problem is that most of these options are not going to be fast. People who need money fast are not able to wait two weeks or longer for the help they need.
7. Borrowers Actually Like These Loans
Despite the negative press that has been given to cash advance and payday loans, several surveys of actual borrowers have revealed that they like having access to such loans. They feel that lenders provided them with excellent customer service. In one survey, 60 percent of the borrowers said that they would be likely to use the product again. Over 50 percent reported that the loans alleviated the stress they were feeling over their financial situation. A different survey found that 95 percent of the borrowers reported that they valued having the option of taking out a cash advance loan, 89 percent reported feeling more in control of their finances because of the loan and 92 percent reported that such loans could be a smart decision when facing an emergency shortage of cash.
Should You Seek a Cash Advance Loan?
Every borrower’s financial situation is different, and there is no single solution that is best for every situation. If used wisely, a cash advance loan can be a sound financial decision. However, if used irresponsibly, cash advance loans can make bad financial situations even worse. Here are some questions to ask before you request a loan.
• Can the expense be delayed? Borrowing to repair or replace your water heater can be reasonable. Borrowing to repaint your bedroom in your favorite color may not justify taking on another debt.
• Can you afford to repay the loan and still meet your other financial obligations? Before requesting a loan, you need to take a realistic look at your finances. If you know that you will not be able to repay the loan when it is due, you could be making your situation worse. You might be better off with an installment loan offering fixed monthly payments and more time to repay the loan.
• Are there any other options available to you? If reducing unnecessary spending, having a garage sale or selling items that you no longer need would raise the funds you need, avoid incurring the debt.
• What would happen if you did not receive a cash advance loan? Sometimes, financial shortfalls seem more critical than they really are. For example, you might feel that it is an emergency to have your car repaired immediately, but if your home and your job both offer easy access to public transportation, you might be able to postpone the repair until you could afford it.
As with any credit product, the more that you know about cash advance loans online, the better your decisions will be. If you would like to learn more about cash advance loans or other credit products, you can find many helpful articles at the Personal Money Store.