Skip the Hassles and get the Money You Need Online
As one of the hottest topics up for debate in the financial world, the subject of online cash advances has certainly gotten a lot of buzz in the media. Are online cash advances safe? Are they secure? Do you get the same benefits as a traditional lending service? Because of their growing popularity they have naturally attracted opposition, such as claims that put these services in a bad light. Are they really all that bad? What's the smartest way to use them? This article will give you a brief history of the bad press that the industry as a whole received as well as some useful tips on how to avoid the common pitfalls associated with unsecured borrowing.
Is This the Best Option for Me?
The most important lesson you as a potential customer could learn is the fact that these loans are meant to cover a short-term financial need. The reason why unsecured lenders have come under such fire recently is due to the relatively high interest rates that come from extended use of the product, despite its short-term nature. In other words, using the funds received for any purpose that is not short-term in nature can result in very large, long-term financial consequences. Consult your accountant, personal banker, or another professional to determine if this option is right for you.
When figuring out whether or not this is the best way to go, the test of time is generally the smartest way to approach the issue. Begin by considering the bill, product or service that you intended to purchase using the funds you obtain upon approval... is the product or service vital? Could you wait a bit longer? Unsecured lenders make their money by capitalizing on your urgent monetary need, so determining if your need is truly urgent is the first step toward making an informed financial decision. Next, consider when you'll have the money to pay back the amount you owe. Will you have enough on your next payday? If you answered no to this question, it may be in your best interest to consider an alternate source of funding such as a collateralized loan against a home, vehicle, or another asset. These alternatives generally have a lower interest rate since they're secured against a physical asset, and as such will afford you a longer window of time to make payments without costing you an arm and a leg in interest.
If in fact your need is short-term and you would be able to pay back the balance plus applicable fees on the date of your next payday, then this route may be the best way to address the financial concern that's on your mind. Before you fill out the application, be sure to investigate the various lending companies that are available to you. Check out their products, ask lots of questions, and make sure you feel good about doing business with that particular vendor. A good provider knows that their customers are usually stressed out about financial situations that are beyond their control, and they'll do whatever it takes to ensure that you are comfortable with the process and that you're happy with the experience.
The History of Short-term Loans
As smaller loans became more popular in the early 1990's, private firms and banks began to open up stores that offered these services to consumers at rates that were incredibly high as compared to those associated with typical mortgage loans and other like products. They came with annual percentage rates (APR) upwards of 350% as compared to the nominal 7% or so, depending of course on the debtor's credit rating. Lenders were allowed to do this amidst a growing trend nationally that called for the deregulation of many businesses - including banking. With the control of the government reduced and the need for viable borrowing options present, the stage was set for cash advances to make their first foray into the marketplace.
As with any new product, these lending options received mixed reviews from the media and their initial customers. With time stories began to surface about parents, adults, and even teenagers borrowing sums of money and then not paying the lender back due to the high amount of interest earned in the meantime. These stories were wildly popular with the new stations as they grasped for anything that could potentially keep a consumer glued to the TV. Everyone has had problems with paying bills before, so stories within this line were considered very exciting. The end result was these services receiving the stigma of practicing predatory lending - a stigma that still plagues the industry to this day.
How You Can Safely Get the Money You Need
Every industry has its bad apples, though some have more than their fair share. Many companies that offer these borrowing solutions are there to provide a legitimate option for people with immediate financial need, while others prey on a consumer's dire need in an effort to charge outrageous interest rates. At first it was difficult to tell the difference between a good lender and a bad one, but eventually the industry found a sound economic balance in terms of a standard fee per hundred dollars borrowed; this figure settled at about $20 - $30, depending on current market rates, demand, and so on.
Shopping around for the best deal is always a good idea, and doing so in this scenario is the best way to ensure that you're getting the best rate available. Because rates are always fluctuating and the number of active providers can change at a moment's notice, no site exists that can effectively monitor current companies and their rates - so it's up to you to decide what's best for you. As long as the fee per hundred stays within the $20 to $30 mark you'll be fine, though you should be suspicious of any company that offers you a higher (or even a lower) dollar amount.
Though $20 or even $30 per hundred borrowed can seem a little high, you should remember that higher prices are often put on items that are considered to be a convenience as well as those that are lent to individuals that have limited credit capability. Since most customers use the funds to pay bills or cover emergency expenses, it's reasonable to assume that the customer may not be able to pay back the balance and applicable fees by the date on which it is due. This is a risky investment for the company issuing the funds, so the interest rate (or in this case fee per hundred borrowed) is high in order to offer the valuable service without the company going bankrupt.
The Benefits of Online Borrowing
Short-term borrowing is absolutely safe to conduct online, provided you use your common sense and a variety of other tools to evaluate your provider. Many websites, banks, and even the federal government and its institutions have setup a number of rules and guarantees that are meant to make electronic transactions safer and simpler. A common misconception about borrowing from an Internet lender is the impending threat of hackers or corrupt parties that scheme to get your financial data. Though these types of people do exist out on the Internet, the same people have just as much of an opportunity to do so in the real world. The truth is that transactions conducted using a computer or mobile device are just as safe (many experts will argue that they're safer) than in-person transactions, based on recent laws and agency practices that act as guarantees to consumers that choose to utilize the services of shops, financial providers, and so on in an online environment.
As America's economy becomes more and more about the ability to request, process, and deliver information in the most quick and efficient method possible, the need for Internet security (and the subsequent need for backup plans should that security fail) is both apparent and vital if online companies are to survive. The federal government makes use of a few bodies that sanction this activity - specifically the Federal Deposit Insurance Corporation (responsible for the security of your bank account), the Federal Reserve (which enacted Regulation E, a provision that guarantees against fraud when transferring monies electronically/online), and finally, the Federal Trade Commission (allows consumers to investigate, report, and file claims against unethical companies and business practices).
Unsecured lenders are no exception, so as a consumer you are charged with evaluating a company before you commit yourself to their business.
Steps You Can Take to Avoid Scams
Most fraudulent companies post websites that are unprofessional and poorly constructed, so the first red flag should come to you if a website "just doesn't look right." Trust your gut on this one, many consumers are much more savvy than they realize. Remember that a company with any sense will try to "wow" you with a website's presence, which costs money, which is something that e-criminals simply aren't interested in; in other words, if it looks (and sounds) like a provider is "up to something" then they probably are.
One way to tell the legitimacy of a website is to find out how long they've been around. Try visiting Alexa, which is a search engine geared toward website performance. Select the traffic rankings search and type in the name of the website you're investigating and then get the traffic details. The results displayed will show you the traffic ranking as well as the date that the site was introduced. Lenders are notorious for going live and then shutting down immediately, so if your provider has been online in excess of a year or two, that's a good sign that the are running a clean business.
Additional Things to Think About
- If you're paying the amount loaned at a date later than what was previously agreed upon, make sure your provider knows about it. Generally, you will have left your banking information with the loan issuer and they will be scheduled to withdraw funds from your accounts on the date you've agreed upon. If the funds are not available, being proactive and letting them know about it will save you the NSF (non-sufficient funds) charge if they try to initiate a repayment and the funds aren't there.
- Be careful not to take out more than one loan during a single period. This is especially important since tracking systems are being developed to monitor how many advances are issued to any one person at a time. Having more than one out is a sign to many providers that you won't have the money to repay them now or in the future, so you may be inadvertently reducing your chances of future borrowing if you take out too many loans at once or you take them out too frequently.
- If an emergency arises and you need to borrow a significant sum of money for an extended period of time, you might want to consider other financing options. These services are not designed as long-term solutions, and the fees associated with them prove it. Alternatives include collateralized loans against your home or vehicle, or even short-term, personal lending options if you have an established history with your bank or credit union.
- If debt seems to be a recurring problem for you or someone you know, there is help available. Frequent reliance might be an indication of impending financial disaster, so get assistance before it's too late. The National Foundation for Credit Counseling is an excellent resource for people who are trying to turn their life around and get out of debt.