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You may have read or heard about somebody complaining that a cash advance loan center charges too much money in fees for the loans it provides. Possibly you have borrowed money from one of those businesses yourself and thought the fees were high. Let us look at some of the conditions that the cash advance loan center must deal with on a regular basis as well as the theory of the layering of risk with its clients. Also, we will examine how a short-term fee may actually save you money with a couple examples. By the end of the article, you will have an understanding about the fees charged and why.

There is a small number among the clients who do business with a cash advance loan center who are occasionally not the most trustworthy people in the land. Because of the fact there is no credit check and only basic checking of the identity of the borrower, this business is susceptible to fraud. When the cash advance loan center is the victim of fraud or a loss from someone using a different person's identity, often it is a straight loss. The center's insurance policy may or may not cover the loss, but too many losses will get them dropped from the carrier. Obviously, this is not to say that the majority of the clients are problematic.

In the lending industry there is a theory called the "layering of risk." What this means is that each item in the loan decision process has a level rating to it. Just a few of the things being addressed are is there any collateral (down payment), or does the center have any loaning and repayment history, credit score and similar things? Since the loan center does not run a credit check, can't take collateral, and may or may not have history with the borrower, the layers of risk are high. The cash advance loan center has to figure this layering of risk into its pricing schedule.

Now that we have a brief understanding of the risks that the loan center is dealing with, we will look at a couple examples of why it may be in your favor to borrow there. Although the fees charged at a payday loans office seem high, here are a couple examples when it makes sense to pay the fee. The first example is Fred, who made a subtraction mistake in his checkbook and is about to be overdrawn and has four or five debit/credit charges and two checks out there waiting to be processed. He can borrow a few hundred dollars for a fee around $50-$75, where his non-sufficient funds fees would be around $210. As long as he can cover the loan amount next paycheck, he will be better off. The next example is Julie, who wants to buy two pairs of designer jeans that are on sale. The normal price is $250 each and they are on sale for $100 each. She is getting a good commission check next week but the sale will be over. So she can save $300 by spending $40-$50 on fees.