How a Typical Instant Money Loan Works

An instant money loan is a short-term loan, which means that the loan is repaid within a month (generally on your next payday) and neither requires your assets (such as your house or car) as collateral nor a credit check. Instead, you provide proof that you receive a regular paycheck and a check dated for your next payday, and the lender charges you a fee to take out a loan for some amount less than your paycheck before that payday.

This fee ranges depending on the lender, location, and days in advance of payday that the loan is being taken out. A five-day loan may be only $3, whereas a 30-day loan may be $15, $25, $50 or more. The fee is usually based on an interest rate that is compounded daily (meaning that more interest is accrued on a daily basis). Compounded daily, the interest is typically anywhere from 1 – 3%. While those numbers may seem small, they would translate to a very high APR (annual percentage rate) of 365 - 1095% if applied to long-term loans. That means that if you were to get $100 a month before payday, you may have to pay $30 in fees and interest. Why pay $130 so that you can use $100 a month early? If not having that $100 means that your electricity will be turned off or that you will have to pay more than $30 in penalties, then it is worth it. However, if you are trying to avoid a $20 penalty, then paying more than $20 for the cash advance does not benefit you.

Since instant money loan interest rates are so unreasonably high when viewed from a long-term stance, several states have outlawed instant money loans altogether or made them nearly impossible with usury laws. Even where instant money loans are legal, it is advised that they be used only as a last resort and that they be repaid as soon as possible so that they do not become financial debt traps for consumers. Since you give the lender a post-dated check, the lender can cash the check on payday if you do not repay the loan or ask for an extension in time. If this results in overdraft, then you will not only pay all the fees associated with the loan, but an overdraft charge. If you cannot repay the loan in time and need an extension, you will pay for that, too.

Instant money loans can become very expensive very fast, so it is important to avoid them when possible. If you have good credit, then you may want to consider a longer-term unsecured loan with better interest rates or getting a cash advance through your bank or credit card. With any of these options, it is still important to repay the loans on time, but the cost of the loan will probably be significantly less if you can avoid the highest interest money loans.



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