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Cash Advances vs. Other Credit Options

Jun 3, 2008
Unfortunately our political advisers have targeted lending and cash advance companies. They feel they can decide what is right or wrong regarding money lending. A lot of people who have limited resources need short term cash advancement and are willing to pay the fees and interest rates associated with them.

For example, when people are expecting a tax refund, they often request a cash advance for something they need at the time. There are currently more than 10% of people who apply for a cash advance. In the past 25 years this business has grown from a $10 billion industry annually to $25 billion.

Payday loans are usually small and short term advances that help you in pressing financial situations. People have found relief in these loans to help them cover car repairs, medical costs and other unexpected financial burdens. An argument for the industry is that it can actually save you money from the late fees and bounced check fees you may incur.

There have been surveys conducted to find the reasons people use payday loans. 75% of those who use them do so to cover unexpected expenses. If you are just a bit short on money, a payday loan is a fantastic way to buy you a little more time and not accrue fees elsewhere.

As mentioned above, there are critics that put down the entire idea of cash advances. They say that some people can be trapped in more debt. Lenders are highly regulated in 33 states. There are current restrictions on how much they can take advantage of a person's dire financial need. They are monitored on their interest rates, fees, and number of roll-overs, the maximum amount lent and the maximum term. Some states are even considering new legislation. Several states are pushing legislation that would end payday lending.

Obviously you wouldn't want to use payday cash advances for long term debt issues like a car loan or mortgage. Debt needs to be handled accordingly and responsibly. For instance, if you don't get paid until a week after your credit card payment is due, getting a cash advance is a good idea. But you wouldn't want to do this every month because of the interest rates at your local lenders.

The recommendation would be to use it once or twice when find yourself in a crunch and then renegotiate with your credit card company to change your due date. Or when you call, you may find out that your grace period gives you just enough time to make your payment when you receive your paycheck. That is just one example of how to be a responsible consumer of payday loans.

Payday loans aren't for every person and contrary to popular belief; most people who borrow are not very poor to begin with. The average income for most borrowers is $25,000 to $50,000. In fact, most borrowers are educated and half of them are home owners.

The industry is gaining popularity and recognition in communities. Bank overdraft fees are typically $25.00 and usually wreck your credit. Payday loans are a short term solution to such fees. This industry is not just in the United States, but other countries as well. As the numbers of payday loans increase, some legislators worry that low income people are being taken advantage of.

The industry fires back that they provide opportunities for people who have temporary, unexpected problems. These loans are much better than the late fees and bounced check fees that usually accrue. Most people agree that payday cash advances are not for everyone and every circumstance. But they can help people with financial challenges that can end up in a crisis. The borrowers out there need to be the ones to decide the fate of this industry as they are the ones on the front lines, receiving the help.
About the Author
Michael New Jr. is an authority in the financial industry. He has written hundreds of articles relating to consumer services and Payday Loans.

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Michael New Jr.
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