Monday, October 15, 2007

The Facts About Cash Advances

Cash advances have many names and many potential uses. Regardless of whether they’re called payday loans, post-dated check loans, deferred deposit check loans or any number of exotic terms, cash advances all have the same basic features.

Cash advances are intended as an emergency source of funds for consumers with credit scores below 620. Credit scores have been used by lenders in determining consumer creditworthiness for almost 50 years.

If your credit score is 620 or below you will be considered financially unstable by mainstream lenders who will consider you a greater credit risk. Lines of credit or loans at competitive interest rates could become very hard to find if you fall into this “subprime” credit category.

Before the subprime cash advance industry came into being, people with poor credit scores who wanted to borrow money were essentially “thrown to the sharks” if they couldn’t borrow money from a friend or relative. Loan sharking became a back alley industry in which the sharks, often members for the Mob, would let their customers borrow money with illegal and ridiculously high interest rates. Failure to pay back the loan sharks whatever outrageous fees they demanded could result in the loss of limbs or even your life.

Today, cash advances may be a subprime consumer’s best alternative in a desperate cash crunch. Even if your credit is good you may still be disqualified for a mainstream loan if you have unreliable income or have few tangible assets.

If used appropriately, cash advances can be a useful financial tool that will help you cope with short-term cash flow problems caused by an unexpected emergency that stretches your finances to the breaking point. Sudden car repairs, illnesses requiring medical attention or money needed for an unexpected trip are all possibilities you may not be able to budget for in advance.

Even the possibility of bouncing a check or making a late credit card or utility bill payment could be more costly than a cash advance. One missed credit card payment could really hurt your credit score and too many bounced checks could cost you hefty penalty fees. The high fees and hundreds of percentage points in interest fees often associated with a cash advance may be a much better alternative.

Cash advances are quickly becoming a viable alternative to solve many consumers’ cash crunches today. As of 2005, there are close to 100 million cash advances issued each year. This explosion of subprime lending has resulted in more than 24,000 cash advance companies being established in stores, check cashing businesses and pawn shops throughout the United States.

As long as there are consumers in need of fast money, the cash advance industry will continue to grow and evolve. Without it, you might have some very unpleasant alternatives.

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