About Short-Term Unsecured Credit Loans
Payday Advances, Paycheck Advances and Payday Loans are essentially short term unsecured credit loans, as they are granted to consumers without being tied to any collateral. Car Cash Loans, which are also short term loans, are secured by the consumer’s vehicle.
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Function
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A short term unsecured credit loan is typically initiated when a borrower writes a personal check for the amount of the loan and dates the check for a future mutually agreed upon date. The amount of the check is equal to an amount up to the value of the borrower’s paycheck, plus whatever fee the lender charges. The lender in turn cashes the check, but retains the fee. The borrower must repay the full amount of the check on the date written on the check.
Terms
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An unsecured credit loan is leveraged against the borrower’s paycheck, and the terms of the loan are extended to the next payday, or the second payday--anywhere from two weeks to one month after the loan. The lender will deposit the check on the date the borrower has written on the check unless the borrower asks to have the loan extended for an additional fee. While some loan stores allow two extensions, others allow the loan to be extended repeatedly, with fees attached repeatedly.
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Rates
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Unsecured credit loans come with a price tag higher than traditional loans. The rate, which is a percentage of the loan amount, can range anywhere from $15 to $50 for every $90 to $100 borrowed. The rates can sometime double or even triple the original amount of the loan if the borrower repeatedly renews the loan.
Not Cash Advances
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Short term unsecured credit loans are often called other names, including payday advances, paycheck advances and sometimes even cash advances, but the usage of such terms creates confusion. Traditional cash advances are actually advanced from a hard financial instrument such as a credit card. Short term unsecured credit loans are leveraged from future earnings that have not yet been disbursed.
Traditional Loans
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The business for short term unsecured credit loans has been given a boost by the difficulty consumers find in garnering traditional loans from banks. And, the banks offering overdraft protection on consumer accounts do so at such hefty rates, that such protection is competitive with short term unsecured loans. Even credit card companies have dampened the availability of traditional cash advances.
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References
- Photo Credit fist full of cash image by Pix by Marti from Fotolia.com
