A cash advance loan is a short-term high-interest loan than can be obtained in exchange for a post-dated check, usually a week or two weeks from the date the check is actually issued, from the consumer. The amount of the check includes the amount of the cash advance plus any additional charges and interest. The lender does not cash the check until the date written on the check. At any time, the consumer can decide whether to let the lender simply cash the check or to renew the loan by paying only the service charge. This arrangement is known by many names, some of which include:
- Cash advance loans
- Payday loans
- Check advance loans
- Postdated check loans
- Delayed deposit checks
- Deferred deposit checks
Although many cash advance lenders would try to have you believe that they are simply cashing checks for a service fee, a cash advance loan is indeed a loan of money. This is important to know because a proper loan provides consumers with a much greater level of protection, including the right to be informed of certain disclosures as stated in the Truth in Lending Act.
It is strongly advised that a consumer understand the risks involved in this type of loan because the interest rate can be incredibly high. The interest rate may be difficult to understand in this type of loan because it is usually described and included in the service fee.
The most common legal problem exists with consumers being surprised by extremely high charges when renewing a cash advance loan. A 15% service fee per week sounds like the same rate as a standard credit card but is in fact a nearly 600% interest rate over a year, which is how credit card interest is calculated. Consumers consider it highly unfair to pay such high rates, particularly if they were not informed of such charges.
The other legal issue is when a check bounces after a lender attempts to cash it. If this happens, lenders will often allege check fraud and take the consumer to civil court, where the punishment may be up to three times the amount of the original check. For consumers, this makes cash advance loans extraordinarily expensive.
If you feel that you have been victimized by some part of the cash advance loan, particularly if you are being drowned in high charges, consult an experienced attorney immediately. An attorney will be able to refer you to a good financial planner and aid you with your loan problems.