The Advantages and Disadvantages of Cash Advance Loans

Any employee who needs cash urgently may opt to apply for and obtain a cash advance loan. It is a cash credit usually offered not just by banks and non-traditional loan providers but also by employers (as a form of added perks provided to staff). A borrower obtains an amount after committing to repay it on the next payday.

Employers that offer cash advance loans provide the amount to the borrower. The same amount would be automatically deducted from the salary of the employee. Some employers do not implement charges or interest fees while others opt to impose such, but in minimal amount. To apply for and obtain the loan from lenders or other loan providers, there is a requirement to fill up application forms, submit income-proof requirements, and issue postdated checks as security.

This type of loan could be advantageous. First, cash advance loans are often much easier to process. Thus, those are considered reliable especially when there is an urgent need for money. Second, documentary requirements may not be as tedious and as numerous as required when applying for mortgages or secured loans. Third, the processing time is much faster (usually about a few hours or within a day) compared to the completion of other loan products.

The disadvantages of cash advance loans are often focused on the interest rates and fees applied. Logically, such credit facilities have much higher interest rates, which often gets around 10% for a loan duration that may last just about 5 days to 20 days. If annualized, that rate could be equivalent to about 200% to 500%, sometimes greater. Worse, failure to repay the amount on the maturity date may lead to imposition of penalties and other fees, which in turn could easily make the principal amount and total repayment due bigger.

Filed Under: Cash Advance Loans

Return to Payday Loans