How can you avoid a loan scam when looking for a cash advance loan?


Quick Answer

Consumers can avoid a loan scam by carefully reading the terms of the loan agreement and shopping various companies' interest rates. Loan companies should not ask for any cash in order to secure the loan. However, the Federal Trade Commission does not recommend cash advance loans, according to its' website.

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Full Answer

Cash advance loans, also known as payday loans, are short-term loans that have very high interest rates. If the customer can not pay the loan at the end of the term, the loan rolls over to the next pay period and more interest is tacked on, as explained by the Federal Trade Commission. Customers should be sure that they understand the interest rates, fees and consequences of late payments because these costs add up quickly.

Instead of a cash advance loan, borrowers should first try alternative forms of credit. First, they can ask their local bank or credit union for a loan. Term rates are generally much more favorable from these institutions, and many community banks give small short-term loans to their customers, according to the Federal Trade Commission.

Another alternative is for individuals to shop for a credit card. They should compare interest and finance charges and pick the one with the lowest costs. Credit cards have lower interest rates than most cash advance loans, according to the Federal Trade Commission. The Federal Trade Commission also advises those struggling to pay bills to contact their creditors to work out a payment agreement. The best course of action is for individuals to budget, save and make payment arrangements so that they do not need any loans.

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