Cash advance loans are often used to solve financial problems in a short term perspective. Can they be viewed as the best solution? In fact, they should be the last resort for you.

Cash advances can be useful in particular situations. But you shouldn’t view it as the only solution to your emergency needs. Let’s see the possible risks!

High APRs as the norm

A short loan term comes with high borrowing limits of up to $500. No credit check is conducted either. As a result, payday lenders charge annual percentage rates (APRs) of almost 400% and more. With loan fees ranging from $10 to $30 per $100 borrowed, the total loan value gets really high.

Odds on the lender’s side

Whatever your expectations are, you will still have a less favorable position. Private lenders want to earn money so they offer the terms and conditions which let them make a profit. Cash advances are issued for a period of 14 days. You are expected to make full repayment by the due date.

According to the review made by the Consumer Financial Protection Bureau, over 80% of payday loans are renewed. This means that many borrowers fail to fulfill their loan obligation so they need an extension of the repayment period.

Collection activity is automatized

When specifying their checking account information, borrowers also provide proof of income and an active phone number. Online lenders make it easy for you to get loan proceeds via cash, prepaid card, or direct deposit within 24 hours. They also make it easy for the loan to be repaid on their terms. A withdrawal for the balance is made from your checking account by the due date.

Loan requires repayment

Failure to cover the loan debt on time leads to serious consequences. These include high penalties. The longer you fail to pay off the loan, the bigger those penalties become. In the end, the total loan amount may double up.

The collection method used by some lenders is far from legal. Even though it’s forbidden by state and federal law to collect money from borrowers by force, many lenders ignore it. The payday lender could even take you to the court for non-payment. While timely repayment of a cash advance loan online doesn’t appear on your credit report, collection agencies can report delinquencies to credit agencies. This always has a negative impact on your credit score. Please mind this every time you borrow money online.

Do you have any protection as a borrower?

When you borrow money from a private lender, you automatically put yourself at risk. The main risk is associated with your inability to make full repayment in a timely manner . Thus, you drag yourself into a debt trap that is hard to get out of.

The state does its best to cap interest rates and fees to 36% or below. However, attempts to take predatory lenders under control have proven to be ineffective.

The Consumer Financial Protection Bureau has introduced a new initiative where loan sharks are going to decide whether prospective borrowers are actually able to repay a loan before they take one out. The rule will also forbid the repeated loans that keep borrowers stuck in debt: Online lenders won’t be permitted to directly roll over loans, unless those borrowers can prove that they are in a better financial situation. It will also impose crucial limitations on lenders’ ability to access borrowers’ bank accounts.

If borrowers use cash advances to address chronic shortfalls, then economic insecurity must be provided to a full extent. This can be the only way to protect against cash shortages that make people take out loans under such unattractive terms.