What is a Check Advance?
A check advance is one option available to individuals who run short of cash. There are many providers, both local and online, that offer this service. Always ask about applicable interest rates and fees before the transaction. Use advances wisely to avoid accumulating unnecessary debt.
Definition
Check advances are also called cash advances and payday loans. The borrower writes a check to the lending institution, which is not cashed until a designated time. The lending institution, in return, provides the borrower with an amount of cash determined by the borrower's income or ability to pay. The amount of the borrower's check to the lender includes the amount of the advance in addition to interest and fees.
Fees
The Truth In Lending Act requires banking institutions to disclose complete details regarding the terms for all transactions. This includes the period of time, the cost, interest rates and fees. Check advance providers charge interest based on an annual percentage rate schedule. They may also collect a nominal check fee as allowed by the state in which they operate.
An Example
John Smith needs $150 today, but he is not paid by his employer until next Friday. He writes a check to the check advance provider for $166 -- $150 for his loan, plus $15 to cover the 10 percent interest plus a $1 check fee. In return, the lender will give Mr. Smith $150. Next Friday, payday, the lender will cash Mr. Smith's check to cover the loan he received the previous week.
Qualifications
Qualifications for check advances vary by company but have similarities:
- Photo identification, such as driver's license or government identification card
- Recent pay stub
- Checking account with good credit history
- Valid contact phone number
- Minimum income requirements