Need Paycheck Advance? Study Advantages and Disadvantages First
Sometimes receiving paycheck advance is the nastiest thing to do. Find out why we should avoid paycheck advance and determine what other options that we might consider. But before that, let us first define:
What is Paycheck Advance and how it works?
Advance paycheck loan is a small, unsecured and short-term (less than 2 weeks) cash advance loan made for the borrowers. Commonly, borrowers write the amount they want to borrow and additional fees in exchange to their personal check. The lender and borrower will have an agreement, wherein the lender will keep the borrower’s personal check until the next payday and if the money is already deposited. Once the borrower agreed on the agreement, the money will release immediately.
In some circumstances, borrowers were signing through electronic access in order to receive and pay their payday loans using their bank accounts.
Needed requirements when applying for Advance Paycheck Loan
- Borrowers must be 18 years old and above
- Employed for 3 months in the same company.
- Not self-employed
- Minimum monthly income of 800 dollars
- Active checking account
- No unsettled advance paycheck loan
- Working phone number
- Written personal check
- Two (2) copy of recent paycheck stub
- Valid identification card
- Copy of recent account statement (check)
- Sign all the needed documents before returning it to the payday lender.
- Recent copy of utility bills (electric, gas, phone, etc.)
Helpful documents but not required
- Able to answer phone call at work and home
- Full-time employed for more than six (6) months
- Two (2) copies of direct deposits or pay stubs receipt n make sure that the transaction information such as amount transfer and dates are indicated.
The concept of advance paycheck seems tempting and interesting. You are expecting that your employer will be going to pay you soon, what if you have an unexpected expense and you need your salary now. What will you do? Should you go for paycheck advance? But before you decide, let us first review the upsides and downsides of advance paycheck.
Paycheck Advance: Upsides
One of the best advantages when applying for an advance paycheck loan is that you will get the money instantly and you will be able to resolve your financial obligations. On the other hand, it is also convenient and even if you have bad credit score you can still avail paycheck advance.
Other advantages includes:
- Payday loan lenders do not need credit history and report.
- Your credit score is protected
- Save money
- Paycheck advance makes you independent. Because you don’t have to beg for money when you use advance paycheck loan.
Paycheck Advance: Downsides
Unfortunately, payday loans or paycheck advance have more disadvantages than advantages. That is why CFBP (Consumer Financial Protection Bureau) is establishing new protocols for the business, in order to give consumers better services. Below are the downsides of paycheck advance.
- The cost
Receiving convenient and immediate money is not free. According to CFBP, for every 100 dollars borrowed, you will have to pay between 10 dollars and 30 dollars for the finance charge. The big question is, are you aware that you are paying too much? If you are paying ten dollars for every hundred-dollar loan then you are forking 10% of your loan. And imagine, you are paying expensive finance charge for a short period of time.
- Extremely high interest rate.
Usually, interest rate are the most life-threatening part of every loan. As of the moment, thirty-year mortgage has a stable interest rate of 4 percent and we are in a low rate period. However, the average interest rate of credit cards are between 13 and 16 percent.
How about paycheck advance? The CFBP stated that a two-week paycheck advance with $15 interest rate in every $100 will have an equivalent APR (yearly percentage rate) of 400%. So, if you did not pay your loan after a year then you will end up repaying four times the value, remember that was only the interest rate.
For additional information, they called it moneylending, which means lending money with unreasonably high interest rate.
- Collection Methods
If you read the loan agreement carefully, you will notice that many of these are on the side of lenders. Each company (paycheck advance) has their own methods and policies. However, if you fail to repay your loan then, these lenders will call your workplace and family members. And in some instances, they are sending and making threats. Unluckily, lawful and unlawful collection methods are not always acknowledged.
- Nasty Consequences
If you did not pay your loan until the given grace period, there would be a possibility that your paycheck advance will be flipped, meaning you will be having a new credit with new fees and terms. With, paycheck advance, the money you be indebted increase quickly.
Another thing is, borrowers sometimes give their bank account information to the lenders so that the lender would be able withdraw the interest rate without deducting any loan balance. In addition, when the lender withdraws from your bank account, the bank will charge new fees. If you experienced this situation, you would communicate to the bank and cancel withdrawal permission for the moneylender.
People who are seeking for online advance payday loans are the main target of hackers. Since many payday loan lenders are offering loans through online. When applying for online paycheck advance the borrowers are required to enter their personal information such as address, names, contact information, email, bank account, Social Security and license numbers. If the lender’s website is not secured, there is a possibility that you will become an identity theft victim.
Paycheck Advance: Alternatives
Instead of paycheck advance, people who are experiencing financial problems can try other options to solve their problems. Here are the following:
- Borrow money from family or friends.
- Contact your paycheck lender and explain your situation
- Ask your boss for cash advance before applying for an advance paycheck loan.
- Get cash advance using your credit card.
- Apply a personal loan from credit union.
Moreover, try to search for other options that will not make your situation worse.