Cash advance loans – better than an overdraft?

Introduction

Alternative financing products may be ideal for individuals who need money in a hurry. If unexpected expenses have toppled a household budget, a short-term solution might ease some financial pain. Cash advance loans have enabled many borrowers to make ends meet until their next pay period.

Benefits of a Cash Advance Loan

A cash advance loan has fewer requirements than traditional banking products. Large banking institutions and consumer financing companies usually require favorable credit scores and certain income qualifications. However, payday lenders will usually ignore bad credit profiles. A greater emphasis is directed toward a borrower’s payroll earnings. Payday lenders may issue a cash advance loan to help a borrower with a financial hardship. Generally, repayment of the money is expected on the borrower’s next payroll period. If a borrower is unable to payoff the cash advance loan, the payday lender might make arrangements to extend the financing period.

Overdraft Against a Personal Checking Account

A banking customer with a checking account generally has the ability to present a paper check for the purchase of various goods or services. The banking relationship could reduce the need for a consumer to tote large amounts of cash. Typically, a bank earns interest from funds that clients have deposited. An overdraft occurs when the dollar amount of checks written exceeds the available funds within a customer’s bank account.

Instead of processing a typical transaction, a bank must perform additional steps to address an overdraft. A notice is sent to the account holder to indicate that a financial deficiency exists within their checking account. Additionally, most banks will assess the account holder a returned check fee. Overdraft fees vary among financial institutions, but a range from $30 to $40 is commonly realized. In some cases, a merchant might represent a returned check that results in an additional overdraft fee to the account holder.

A single overdraft fee could create a domino effect for a consumer’s checking account. For example, an unexpected overdraft fee could cause a $10 purchase to get returned for insufficient funds. Additional overdraft charges might cause a consumer’s account to spiral out of control. A bank might demand swift actions to resolve an unbalanced checking account. Failure to pay overdraft fees will likely prompt a bank to close a consumer’s checking account.

Summary

For a short-term emergency, cash advance loans are better than an overdraft. The loan terms are very straightforward and easy to understand. Overdraft fees can immediately impact a consumer’s finances as well as any pending payments made with a personal check. Contact a payday lender to learn more about cash advance loan products.

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