A payday advance is a form of credit that holds many of the same characteristics as a cash advance or a payday loan. Borrowers typically receive advances of $100 to $800 and repay the lender within a few weeks. Unlike a mortgage or a car loan, a payday advance is not linked to a specific purchase. Most lenders do not require collateral or expect the borrower to maintain a high credit score.
Payday advance lenders provide customers with short-term loans that have very high interest rates. Repayment is often due on the borrower’s next pay day. A lender may ask the borrower to write a personal check for the combined amount of the advance and the interest fee. Lenders cash these checks when the corresponding due dates arrive. Some lenders prefer to withdraw the money by using electronic debits.
For borrowers, one of the main benefits of a payday advance is that lenders apply little scrutiny to their credit records. Customers usually gain approval for payday advances more quickly and easily than they can acquire credit cards or personal loans. However, fees and interest often become burdensome when borrowers use payday loans regularly. A loss of employment or a late paycheck can add to the cost.
People obtain payday advances for a variety of reasons. Some customers use them to pay for essential supplies and services like housing, utilities, transportation or food. Others need to cover the cost of home or auto repairs that cannot be delayed until the next paycheck arrives. A few borrowers use them to make credit card payments or pay off other loans.
Payday advances vary in size and cost from one country or state to another. Due to limits on interest and fees, they are not offered in some parts of the United States. Such loans provide the only source of credit available to many individuals and small businesses. At the same time, some state legislators and consumer advocates feel that payday lenders charge excessive rates and further impoverish their customers.