If you are employed and do not have much cash and an unexpected bill has come up, a cash advance---also known as a payday loan or payday advance---could provide enough money to tide you over until you are paid. You will probably require proof of employment, a checking account and debit card.
Fees
The finance charge, or cost of borrowing the money, on a cash advance is very costly according to the Federal Trade Commission. It's called a processing or application fee and is a percentage, usually 15 percent, of the requested loan amount. The fee is paid at the time the loan is paid back. For example, you want a loan of $300. The application fee will be $45. You pay back $345.
Application
The application requires your name, Social Security number, address and phone number. It also may require your employer's name, address and phone number, as well as phone numbers of family members and their addresses. Those family members and your employer may be contacted if you don't repay the loan. Payday lenders are not under the same restrictions as debt collection agencies.
Repayment
When you receive the loan you approve an automatic electronic debit to your account for the loan amount plus a processing or application fee on the date the loan needs to be repaid. Alternatively, you provide a postdated check for the loan and processing fee amount. The lender will cash the check or debit your account even if advised that there is no money in the account. That results in insufficient funds fees from your bank and you still have to pay the lender. Some lenders will try to debit your account every day, resulting in hefty insufficient fees from your bank.
Rolling Over
If you can't pay the loan back, you will have to roll over the loan for another time period. That doesn't sound so bad until you realize that you'll have to pay another processing or application fee. So for this example, you've now paid two fees of $45 for a $300 loan for 30 days. Some lenders intentionally only debit your account for another application fee and roll the loan over automatically, rather than debit your account for the entire amount owed. The only way you may be able to stop this is to close your account.
Credit Check
The lender will not check your credit report because the decision to grant the loan is based on your being employed. Repaying the loan doesn't improve your credit score. After collecting several months of application fees, the company may turn the account over to a collection agency and report it to the credit bureaus. This will damage your credit scores.
