Cash advance and signature loan are classified as unsecured loans and requires no collateral. Finance and check cashing companies may refer to cash advances as payday loans, check advances, post-date checks, cash advances or deferred deposits. A signature loan, also known as good faith loans are offered by financial institutions, such as bank.The Federal Commission Trade requires all lenders offering unsecured loans to consumers to provide the fee and annual percentage rate in writing before signing promissory notes. Although, the cash advance and signature loans are considered as unsecured, there are differences between the two.
The three differences between a cash advance and signature loan are; eligibility requirements, loan amount limitations, and penalties for late payment. The eligibility requirements for a cash advance are employment history, completing an application, and providing copies of pay check stubs. Consumers are charged high rates (fees) and the loan is usually due in two weeks after the promissory note is issued. Most lenders of cash advances do not require credit checks. The requirements to obtain a signature loan are somewhat the same as cash advance, except signature loan lenders require credit checks and payments are scheduled monthly.
Cash advance plus the fees charged for the loan cannot exceed the consumer net pay of the next pay period. Consumers may opt to repay the loan in full from personal checking accounts electronically. If the consumer is unable to repay the loan on the required due date, some companies allow rollovers or extensions. Signature loan amount is not determined based on the net pay, but the ability to repay the loan. This type of loan is normally $1,000 and up to pay for things like vacation or consolidation of debt.
There are no monthly payment plans for cash advances because the due date is the next pay period. If a consumer is unable to repay the cash advance, the fee amount doubles. Assume a consumer received an advance in the amount of $250 and the fee rate was $45, the amount due would be $340 after an extension. Each pay period the consumer is unable to pay, another $45 is added to the principle. If a consumer is late paying on a signature loan, a fee is accessed to the account with the interest.
Presently, the Consumer Finance Protection Bureau is proposing new rules and regulations concerning cash advances or payday loans, according to Huffington Post. The rules are for the consumers’ protection and prevention of indebtedness. If the rules are approved, lenders will have to assess the consumer ability to repay the loan without defaulting and needing extensions. The rule will apply to all lenders offering loans with 45 days or less period for full repayment.