You have heard the stories of people taking out a cash advance only to owe more in finance charges than in principal. You can't help but ask - how did this happen? Will it happen to me? You can avoid such situations if you shop wisely for a cash advance company and pay your loan on time.

Rolling Fees

Cash advance lenders charge on average $15 for every $100 borrowed. If you were comparing APR, it would be 390%. Some lenders' APR can be as high as 1000%. This usually occurs when the pay back period is calculated in days rather than weeks.

So a cash advance of $100 will require a payment of $115 on payday. If that loan is rolled over for another two weeks, the loan payment will be $130. Do that for four pay periods, and you will owe $60 in finance charges. After seven pay periods, $105 in finance fees will be racked up, more than the original loan amount.

Research Rates

One way to avoid this situation is to research rates prior to taking out a cash advance loan. Investigate rates of lenders and understand their payment structure. You can also search for first time deals online that reduce or eliminate some fees.

Pay Back Your Loan

Plan on paying back your loan on your payday. This is the surest way of avoiding those rolling fees. You can arrange with your lender to automatically deduct your payment when you are paid. Some lenders default to only a partial payment, but you should request a full payment. Cash advance companies may present it as a benefit, but you are only increasing your finance fees.

Other Credit Sources

If you need a long term loan, then consider your other sources of credit. Credit cards and personal loans offer a better APR. But you should be aware that they will negatively impact your credit score.

Another option is to use a credit counseling service. Through a confidential meeting, a counselor can help you plan your finances. They can also point you toward financial services, such as debt consolidation.

About the author:

See my recommended Cheap Payday Loan companies with the lowest rates online. Carrie Reeder is the owner of ABC Loan Guide, which offers help with loans for people with low credit scores.