The realities of instant cash advances are very different from the stereotypes spread by industry critics. Below is a simple analysis of instant cash advances to help separate fact from fiction. The typical commission for receiving an instant cash advance is $ 15 for every $ 100 as a fixed price for a short-term trade. Customers understand that a one-time loan can be cheaper than the cost of returning a check, missing a credit card payment, or neglecting an invoice.
The Federal Lending Act (TILA) requires all financial institutions to disclose loan fees in terms of an annual percentage rate (APR). To be TILA compliant, Advance America provides an estimated annual rate of the amount you would pay in commission if you renewed your advance every two weeks for a full year.
The average loan term is only two to four weeks. The annual interest rate is a more appropriate measure of the costs associated with loans for at least a year such as a mortgage or a car loan. However, even when using the annual interest rate as a measure of the cost of various short-term loan options, an instant cash advance is still the least expensive option when compared to bank overdraft fees and returned checks.
Common-Used Stereotypes About Instant Cash Advance
1: Instant Cash Advance is a Personal Loan
Cash loans are a type of lending funds to borrowers but technically they are not a loan. Roughly speaking, an instant cash advance is about acquiring further receivables. It suggests that your lender is essentially buying a portion of your credit and debit card sales. You can receive a one-time loan similar to a conventional one.
Rather than sticking to a specified payment schedule of a fast loan over a specific period, a percentage of your daily or weekly credit card withdrawals will be removed from your bank account while your debt will not be paid in full (plus any commissions), you can learn more about that at Directloantransfer, one of the markets leaders.
While instant debt functions, you may observe the key differences: with an instant cash advance, the amount a borrower receives depends on the projected future costs while with a traditional loan, the funding amount will be established on a credit history. Unlike traditional loans, an instant cash advance does not demand collateral.
2: Instant Cash Advance Has Higher Fees Than Other Forms of Funding
The assumption that an instant cash advance is significantly more expensive than other forms of financing is one of the most common misconceptions about this form of alternative financing. Instead of the standard interest rate, such as the SBA and banks’ fees, a so-called “factor rate” will be used when disbursing cash to borrowers.
Unlike interest rates which can increase as the loan is paid off, the factor rate is a simple decimal number that indicates how much “extra” you will owe on the initial amount of the debt. For example, if you borrow $ 1,000 at a rate of 1.3, you owe a loan of $ 1,300. Your factor rate is determined based on your risk assessment. So, the more reliable your business financial history, the lower your rate should be.
Due to flexible approval requirements, faster turnaround and shorter maturities, an instant advance can come with higher borrowing costs than traditional term loans. However, this does not guarantee that advances will be more expensive than other types of financing. Ultimately, the value of your debt will depend on your risk assessment and how quickly you can pay out your loan.
3. Predatory By Its Nature
Alternative lenders with dubious reputations make it easier for business owners to fall into the dangerous cycle of “folding” to pay off existing advances. On the other hand, reputable lenders know that the success of the businesses they lend to is directly related to their own success. There is no incentive to finance businesses that are unlikely or unable to repay.
Exposure: Some lenders are predators but most are not. Reputable alternative lenders know that your success means their success. Moreover, they will not resort to predatory practices such as piling up loans.
4. Instant Cash Advance is not Adjustable
An instant cash advance is regulated under different rules than traditional loans and lenders. An instant advance is regulated at the state level and rules vary from state to state. These rules are not as strict as federal laws governing banks and other traditional lenders. They allow alternative lenders to offer better terms and more flexible financing tailored to unique financial needs with less regard for their credit rating and financial history.
Additional rules are being developed to ensure that irresponsible sponsors do not take advantage of business owners. Bonafide lenders pride themselves on providing only responsible and sustainable financing to help you grow your business or other financial goals. Typically, these financiers will not lend you more than you can borrow and support the development of new rules to protect business owners from predatory lenders.
To make sure you are working with a reliable lender, look for lenders who are part of a reputable association with good reviews on such sites. Ask many questions during the loan application process and only work with lenders who clearly answer your questions.
5. Cash Advances Are Only for Businesses With Low Credit Ratings
While it is true that instant cash advance has different approval requirements (that are more favorable to companies with lower credit ratings), companies with high credit ratings and strong financial history can still benefit from such type of financing. Traditional lenders often refuse even companies with a good credit history and a proven financial history.
If you meet the strict requirements of these lenders, many business owners will appreciate the speed and flexibility of financing making your advance an attractive option for all businesses regardless of credit rating.
There are many myths and misconceptions about instant cash advances. Beliefs that they have the highest performance, that they are only for failing businesses or people, that they are unregulated and predatory in nature are unfounded. In fact, commercial advances offer a number of advantages over the financing options offered by traditional lenders including simplified application, flexible approval requirements, and faster application processing. With funding in just one business day, many businesses can benefit from a cash advance including businesses with a good financial history