Payroll cash advances are the adult way of going to dad or mom and asking for a bit of an advance on the next allowance so a movie or a few dollars of gas in the tank or both were possible. The thing about payroll cash advances is that dad didn’t ask for his child to put a hand in the father’s pocket where he kept his pet scorpion in order to get the allowance. Maybe shovel the front walk of snow or clean up the house, but the companies that offer payroll cash advances really do have scorpions in their pockets in the form of very high interest rates and origination fees. So if a person really wants one those advances, the old “hand in the pocket and pray for the best” trick is in order. There are a number of things a person ought to know about these kinds of borrowing agreements.
There is never a credit check with payroll cash advances and that is the first red flag that is brightly waving in the air. Basically the rule of thumb in borrowing any money is that the tighter and more stringent the credit checks, the lower the interest rate will probably be on the lending agreement. Those lowest interest rates are found at banks which are notoriously conservative on credit checks. In other words, a person doesn’t get bank money unless there is about a 640 in the credit score. Payroll cash advances require no credit check so guess what kinds of interest rates they have. The interest rates do vary from state to state with Ohio having one of the most stringent laws governing the cap on these types of lending agreements. In that state origination fees and interest on five hundred dollar cash advance amount to about seventy five to a hundred dollars for that amount of money and two weeks of freedom until the loan becomes due.
On the other hand, companies in other parts of the country have been known to charge up to one hundred percent on loans and in the United Kingdom, the rates often run from three hundred and forty percent to over seven hundred percent! And because so many of our service men and women use these companies, the Department of Defense has filed suits asking for the interest rate to be capped at thirty six percent for members of the military. But despite high interest rates for two weeks loans, many people use the services of the companies offering payroll cash advances and so these lending agreements do meet the needs of many people while perhaps taking full advantage of many who have emergencies in their lives and need some help. In most cases, the interest rates and originations fees are clearly posted on the walls of these offices and also on the agreement and the checks people sign to get these cash advances. It isn’t as if people are kept in the dark about the fine print.
So how do these lending agreements work? First, the customer must have had a job at the same place for at least three months in most cases and must have a checking account that is currently operational. Those really are the only two requirements. Upon qualifying with the paycheck stub and proof of a checking account, the customer is asked to write a check to the payroll cash advances company which will then be held for two weeks or at the next pay day. The check is then cashed on that day and if the check is returned, collection procedure can be initiated on the account. In many states, these lending companies can lend more money to cover the first check, and the actual interest rate on these loans can rise to over three hundred percent if left in default.
Who will need and use these kinds of loans? Since seventy percent of America lives paycheck to paycheck, more people than might first be thought. If there is an sudden illness for a family member several states away and a trip is needed, or the car’s transmission begins acting up, or if a furnace goes bad or any other emergency could spark such a need. But financial experts warn that these types of lending agreements should only be used in a last resort scenario and should never be used for entertainment, gambling, or any other unnecessary expense. Using payday cash advances for these kinds of expenditures is the beginning of a downward spiral into a debt black hole.
