What Are the Pros and Cons of Cash Advance Loans?


Quick Answer

An advantage of cash advance loans is that a borrower can receive needed funds before their scheduled paycheck arrives, but a major disadvantage is the high fees and interest rates associated with these loans, explains the Federal Trade Commission. The FTC does not recommend cash advance loans.

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Full Answer

Cash advance loans are a type of payday loan. The Federal Trade Commission describes a cash advance loan as when a borrower writes a personal check to a bank or other type of lender for the amount they want to receive, with the additional cost of a transaction fee. Typically, the lender then gives the borrower the money, minus the fee. The lender then holds the check until the loan is due, which is normally the next payday of the borrower.

Although these types of loans can help the borrower receive money they need in advance, there are a variety of costs associated, explains the FTC. These costs can include the initial transaction fee, a high amount of interest accrued from the loan, and charges for rolling over or extending the loan. Cash advance loans ultimately are considered very expensive credit. As an alternative, the FTC suggests trying to find an alternative type of loan with a lower interest rate.

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