Cash Advance Pitfalls
Like all forms of debt, cash advances have a certain amount of risk involved with them. If you ignore these risks or abuse these kinds of loans, you could end up with serious debt problems. Read on to learn about the most common pitfalls of paycheck advances and how to avoid them.
Ignoring the Terms of the Loan
When borrowers apply for cash advances, they are usually in a rush to get their loans as soon as possible. This is understandable when you consider that most payday advance borrowers are facing pressing financial emergencies. However, it's important not to let the exigency of your financial crisis cloud your judgment or force you to make rash decisions. If you rush into a payday advance blindly, you'll end up paying for it later. Before you agree to the terms of any cash advance loan, make sure you've read through the lender's agreement thoroughly. Pay close attention to the APR (annual percentage rate), finance charges, and repayment terms of the paycheck advance. If you have any questions about what you've read, ask your lender before you sign anything. Taking the time to understand these terms now will prevent you from getting ambushed later.
Not Paying Promptly
Most borrowers only run into serious difficulties with cash advances when they roll the loans over so they don't have to repay them as soon. Rolling over a cash loan means you pay extra charges in order to renew the loan for one more cycle. This buys you extra time, but it will also cost you a pretty penny (varies by lender). In almost every case, a borrower who can't pay back the payday advance on the original due date will not be able to repay it at a later date either. As a result, the borrower gets stuck in an endless cycle of rapidly accumulating debt. To avoid this trap, pay your advance back in full on the date it is due.
Borrowing the Maximum
The average cash advance is for about $500, but certain lenders may issue advances as large as $1500 to qualifying borrowers (varies by lender). Loans this size are very difficult to pay back, even for borrowers with relatively high incomes. What you have to remember is that the larger your loan is, the more expensive your finance charges will be. Payday loans are only intended to cover the essentials until your real paycheck comes in; they are not supposed to be windfalls of free money. Be conservative when borrowing cash advances so you don't get stuck with impossibly high fees later on.
