What Cash Advances Should Mean to You in Recession?

Unfortunately, many families and individuals live either beyond or really close to their means in our country. With a worsening economy and unemployment on the rise, any unexpected situation may cause a budget to be blown and money to be spent that simply isn’t there.

In order to cover any cash shortfall cash advances “money stores” have sprung up all over the place. With the recent economic downturn there has been an explosion in the number of cash advances or payday loans across the country. While these loans may seem like a solution to temporary cash needs, they typically turn out to be disastrous for the people that take them.

These outlets that offer cash advances state that they provide a service for a temporary need of cash. You borrow the money for a small fee, and when you get paid next you come in and settle up your debt. They claim that these loans fill a gap in the marketplace; banks don’t loan money in such small increments as a couple of hundred dollars, and not everyone has the desire or property needed to use the services of a pawnshop.

Critics, however, state that these loans are predatory in nature.

All a person needs to obtain one of these cash advances is have a bank account and steady income. The borrower writes a post dated check and then the money is given to them on the spot. The borrower is given a set amount of time, usually two weeks, to repay the loan.

Often what happens is the borrower cannot repay and is put in a tough spot. If the cash advance outlet cashes their original check they will be hit with non-sufficient funds fees from their bank and could even face criminal charges for writing bad checks. In order to cover the money due, the customer extends the loan.

This process traps the customer into a seemingly never-ending cycle of debt. Unless they come across a large chunk of extra money, they will continue to take these loans. Interest on a loan like this doesn’t seem bad at face value, but when you consider that it’s for the long term the rates are astronomical.

A loan of $325 will end up having an APR of 400% and will cost the user about $52 every two weeks in interest! The average customer will end up paying $800 in order to borrow $325!

Industry statistics show that 99% of cash advance users are repeat buyers. The average customer takes out nine loans a year. Clearly, these loans are set up as to almost guarantee that they will not be short term. This is a huge business costing American families $3.4 billion annually.

The most tragic aspect of the cash advance system is that it takes advantage of our country’s citizens who are working the hardest and struggling the most. In fact, one study found that your proximity to a military base increases your likely hood of taking out one of these loans.

While these loans may seem like the quick fix for a money crisis, in the end it is better to explore any other possibility available. If not, the user could find them in a cash advance version of quicksand, where the more they struggle the deeper they sink.