Are High Interest Rates on Cash Advances Justifiable?
Interest rates on cash advance are often much higher than a conventional loan or line of credit. Find out why.
Cash advances, otherwise known as bad credit loans or instant payday loans, have notoriously high interest rates. Fast cash loans are easily available, simple to apply and qualify for, and deposit money almost instantly in your bank account. Paycheck advances provide for emergency funds and stand in the gap until you get back on your feet.
This type of life-saving cash comes with a price that is justifiably higher than a conventional loan.
Conventional loans are a very different beast than a cash advance. To qualify for a good deal on conventional loan, you must have a good credit rating (FICO score) and assets to back up the loan. Lenders see these things as lowering your credit risk, and since they are the ones taking a risk on lending you money, they need to make sure you will pay it back. The higher your credit score, the lower your credit risk, qualifying you for better interest rates.
Companies that provide cash advances are taking a huge risk. They loan money out to people with bad credit scores, and can justifiably charge higher interest rates because they are taking a big risk on who they lend to. It is all part of the business.
Some people believe that cash advance loan interest rates are too high. But if you consider the advantages these loans provide, then the higher interest rates make sense.
Cash advance payday loans are available to people who would not typically qualify for a conventional loan. The funds are immediately available and are very convenient to obtain. In addition, cash advance companies don't pull your credit score. This is an advantage because every time your score is pulled, is pulled, it lowers your score. In contrast to a conventional loan with a lower rate - the funds take longer, are dependent upon your FICO score, and are anything but convenient to obtain.
Ask anyone who has been turned down for a dozen loans and then is accepted by a bad credit score loan or a payday loan if the interest rates are too high, and they will tell you the advantages far outweigh the rate on the loan.
Another often overlooked advantage to bad credit score loans is they give you a chance to repair your credit. Simply by taking out these loans and repaying them in a timely manner, you boost your credit score numbers.
Between the opportunity to rebuild your credit and obtain a fast loan in an emergency when a conventional loan company would turn you down, it is obvious that the benefits of the cash advance loan fairly warrant the higher rates.