online cash advance
Online cash advance Customers Have Access to Prime Credit
Even though the authors’ study indicate that on average, consumers who use online cash advances have a lower average income compared with those who just use credit cards, the same study indicates that their average FICO score is still in the 620 or slightly lower range. Thus, they can still access prime credit cards.
Why is it then that, as the authors indicate,
Two-thirds of people in the matched samples have at least $1,000 of credit card liquidity on the day they take their first online cash advances, much more than the typical $300 online cash advance.
It’s an interesting question. A 2001 survey by Elliehausen and Lawrence regarding credit card availability and usage found that 56.5 percent of respondents who used online cash advances had bank-issued credit cards with liquidity available, but 61 percent “hadn’t used them in the past year in order to avoid exceeding the cards’ credit limits.”
People Don’t Like to Admit When They Fall to Temptation
The authors show us that there is a steady decline in credit card liquidity leading up to the time when consumers take out online cash advances, but the liquidity doesn’t disappear entirely. The authors comment that
This is interesting because it speaks to the question of why people borrow on online cash advances. If liquidity were flat until a large drop one month before the online cash advance application, we would suspect that a single large bad shock had unexpectedly arrived. Since we find average liquidity falling steadily, impatience, general financial mismanagement or persistent shocks seem more likely explanations.
Perhaps what Agarwal, Skiba and Tobacman define as “impatience” or “financial mismanagement” could include the psychological temptation having a credit card that needn’t be paid off in full each month (advisable, but generally not required). It would be worth studying that factor in greater detail, as I know from first-hand experience that having access to credit, using it and allowing it to revolve month-to-month is an easy trap. In my opinion, such situations are not out of the ordinary. Closer study is warranted.
The Author’s View of Online cash advances is Limited
Obviously, if you only survey financial results based on the clientele of a single payday lending operation, your results will be far from definitive. When the authors claim that credit card holders who take out online cash advances are 92 percent more likely to experience credit card delinquency, such a dramatic number indicates to me that the statistical sample is much too small to be meaningful. If consumers evaluated by Teletrack are generally less prone to online cash advance defaults, why would credit card defaults be all that different?
It is significant to note here that applying for online cash advances does not generally depend upon or impact one’s FICO score. That is one of the major selling points of the product, as consumers with less than perfect credit can take out a online cash advance for a set amount when necessary. There is no system of revolving credit at work with online cash advances; the balance is paid in full at a set date two weeks in the future. Furthermore, since online cash advances obtained after Teletrack reference are generally not recorded in a consumer’s credit history, other lenders cannot use a consumer’s online cash advance history against them
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