online cash advance
Online cash advance Reform Act Leaves Customers with Bad Alternatives
Professor defends online cash advances
University of Kansas
The Online cash advance Reform Act is making its way through Congress, and many have concerns about how it will affect consumers who use payday lenders, online cash advances and other short-term loans.
One such concerned citizen is Robert DeYoung, a finance professor at University of Kansas. He wrote an opinion piece that was published Tuesday in the Wall Street Journal.
In his piece, DeYoung talks about the misconception that online cash advance customers are uninformed and that payday lenderstake advantage of this. He debunks the conception by citing A January 2009 study by Gregory Elliehausen at George Washington University. DeYoung writes:
The study found that payday borrowers make informed choices. About half of the 1,173 payday borrowers he surveyed considered other credit alternatives — such as bank, credit card, or personal loans — before taking out a online cash advance.
DeYoung also cites another study that reports the average online cash advance customer is young, married, has a high-school education, a bank account and a major credit card.
So why would a person with a bank account and a credit card need a online cash advance? This brings me to the bad alternatives to online cash advances
Anyone who has ever bounced a check knows it is expensive. Overdraft fees and NSF fees can be more than triple the fees on a online cash advance. So many informed, intelligent consumers choose to take out one online cash advance and pay the fee rather than overdraw a bank account several times and end up being charged a lot more.
Credit card cash advances
If your bank account is nearing empty and you need to make a purchase, putting it on a credit card can be a good alternative. However, if you need cash that is a whole different story. Especially if you actually use your credit card.
Cash advances can end up being extremely expensive. If you get a cash advance on your credit card, the company will charge you a much higher interest rate on that than it charges for your purchases. Furthermore, you cannot pay off cash advances until your other balance is paid off, so you could end up paying a high interest rate on a cash advance for a very, very long time.
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