How do payday loans and cash advances work?

So what are Payday loans and why do people choose to take a quick cash advance some folks are asking? How do each work? Why would it make sense to get a payday loan or cash advance?

With Payday Loans, borrowers visit a payday lending store online or in person and secure a small cash loan, with payment due in full at the borrower’s next paycheck (usually a two week term). The borrower writes a postdated check to the lender in the full amount of the loan plus fees. On the maturity date, the borrower is expected to return to the store to repay the loan in person. If the borrower doesn’t repay the loan in person, the lender may redeem the check.

If the account is short on funds to cover the check, the borrower may now face a bounced check fee from their bank in addition to the costs of the loan, and the loan may incur additional fees and/or an increased interest rate as a result of the failure to pay. For customers who cannot pay back the loan when due, members of the national trade association are required to offer an extended payment plan at no additional cost. In Washington and some other states, extended payment plans are required by state law.

A cash advance is a service provided by most credit card and charge card issuers. The service allows cardholders to withdraw cash, either through an ATM or over the counter at a bank or other financial agency, up to a certain limit. For a credit card, this will be the credit limit (or some percentage of it).

Cash advances generally incur a fee (to replace the interchange fee normally charged to the merchant on a card transaction), although this is sometimes waived if the account is in credit. When made on a credit card, they are usually charged at a higher rate of interest than store purchases, and generally do not attract an interest-free period which is customarily given to cardholders who pay off their bill in full every month.

If you are in a pinch and have nowhere left to go, say you have an emergency car repair or something else unexpected happen, you can always turn to a payday loan or a cash advance to fund your shortcoming.

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