Stretching money to the end of the month is often a daunting task. This task becomes even more stressful when bills are due before payday arrives. Advance check cashing is a way you can borrow money for a short term – just until your next payday arrives – so you can cover your bills in the meantime.
What is Advance Check Cashing?
Advance check cashing, also called a post-dated check loan, is a method that allows you to cash a check before funds are in your account to cover the check. It's a cash advance that you receive by using your check as security. You receive this cash in the form of a loan, one of which is often called a "payday loan" because lenders agree to hold your check until your next payday. Some borrowers repay their loans from other regular income, such as from their Social Security checks.
You're required to pay back the amount of your check plus a fee, typically called a finance charge. When you write a check for this type of loan, the check total includes the amount of the loan plus the fee. The lender gives you the cash amount of what you're borrowing, less the fee that's included in the check total. On your payday, or other date that the lender approves as the due date, the lender deposits your check, which pays him the funds you borrowed plus his fee. Depending on the lender, the fee you pay may be a percentage of the loan amount, or it may be assessed on an incremental basis. For example, you may be assessed a certain fee for each $50 increment that you borrow.
Advance Check Cashing Fees
Fees are significantly higher for advance check cashing services when compared to other types of loans, in part because of the short duration of these loans. Most advance check cashing lenders place the due date only two to four weeks from the date of the loan. Although loan amounts vary, $500 is a common maximum. Some states impose laws for advance check cashing loan fees, including a cap on maximum fees, while other states do not regulate these fees. Many states do not allow these types of loans at all.
The Consumer Federation of America (CFA), a nonprofit pro-consumer advocacy organization, provides a snapshot of advance check cashing loan fees. The average loan term is typically only two weeks, and the average Annual Percentage Rate (APR) for a two-week loan is 400 percent. As an example, a consumer who borrows $100 for two weeks may pay from $10 to $15 just for the fee to advance the loan, which represents a range of 390 to 780 percent APR. Loans with a shorter term, and loans which originate in a state that does not regulate the fees, can carry fees even higher than this example.
Places That Offer Advance Check Cashing
Advance check cashing loans are one example of subprime loans, so-called because consumers who borrow money this way are considered "subprime" – they do not have stellar credit scores and they do not qualify for conventional loans at prime rates. Most advance check cashing loans are not offered by banks, although some banks do have payday lending programs. Places that offer these types of loans include check cashing services, payday loan stores, pawn shops, title loan companies and finance companies. Loans may be in person, over the phone or on a lender's website.
The Consumer Financial Protection Bureau (CFPB) is a <st1:country-region w:st="on"><st1:place w:st="on">U.S. government agency that advocates for consumers who have problems with financial products or services. The CFPB acts as an intermediary between a consumer and a financial company to help resolve problems. You can file a complaint against a financial institution by visiting ConsumerFinance.gov, typing "submit a complaint" in the upper right search field and following the prompts. You can also call the CFPB at 855-411-2372.
- Federal Trade Commission: Payday Loans
- Federal Deposit Insurance Corporation: Financial Institution Letters
- Consumer Protection Financial Bureau: What is a Payday Loan?
- Consumer Federal of America: About CFA
- Consumer Federation of America: PayDayLoan Consumer Information
- Consumer Financial Protection Bureau: Having a Problem with a Financial Product or Service?