"Instant payday loans", "EZ payday cash", "confidential payday loans", "Easy cash loans... " you have probably seen and heard ads like these on television, radio, on the internet etc. These are some of the many terms for online cash loans, a loan where the lender gives you instant cash at the time of need and you agree to authorize an electronic funds transfer from your checking account on the loan due date.
The fee for online cash loans is usually a set percentage of the total amount borrowed, or sometimes a given percentage for every $100 borrowed. Also worth mentioning is that, should you "roll-over" or extend the loan, you will have to pay some additional fees for the time elapsed.
The main problem with online cash loans is that they are a very expensive and risky way of obtaining short-term credit. What is worse is the fact that most people discover they are in no more of an improved financial situation when the money is due than they were when taking out the loan. This often leads to a vicious cycle of regularly taking out cash-advances and extending them, which ultimately becomes exorbitantly costly.
Lenders often count on the simple obvious fact that most borrowers will not have the money ready to repay back the borrowed amount plus the interest on their next paycheck, hence they will be forced to roll over the loan for an extra fee, thus creating a snowball effect of inescapable debt.
When all is said and done, online cash loans are not the only solution that can get you out of a short-term financial crunch. Some alternatives you can consider before opting for a cash advance or similar loan include getting an advance from your employer, getting an overdraft from your bank or credit union, or even asking your close friends and family for a loan payable back in installments.
However, these are often not viable alternatives, especially for people on the lowest wrung of the social-economic ladder. Many of the country's lowest paid workers have no access at all to bank lending either because they do not earn enough, or because they have no credit history due to never holding a credit card or maintaining an overdraft. This is especially the case for immigrant workers, who new to the country, have no financial histories at all nor do they have family or friends to turn to in the event of a desperate financial situation.
It is these types of people that payday loans most appeal to. However, low paid, casual workers are most at risk from becoming trapped in a cycle of debt through cash advance borrowing and so should be on their guard against them when another solution is possible.