Cash Advance Loan VS. Credit Card Cash Advance
Go Back To Previous PageA cash advance loan and a credit card cash advance serve a similar objective of offering borrowers quick funds through a seamless approval. Despite this, the two terms are worlds apart. We explore the differences in our cash advance loan vs. credit card cash advance discussion and pinpoint their similarities. Let’s jump straight in and discuss cash advance loans.
What Is A Cash Advance Loan?
A cash advance loan is a short-term credit facility from a lending institution, which is typical to be paid by your next payday.
A cash advance enables you to meet unexpected costs such as emergency car repairs and medical bills. Most lenders will deposit the cash to your account the same day without any paperwork. The interest rate on cash advance loans depends on multiple factors such as income, debt-to-income ratio, and credit score.
A mobile device indicating that credit approval has been granted rests on top of a credit approval. A ballpoint pen, a calculator, and a pair of eyeglasses rest next to the device. Photographed with a very shallow depth of field.
How to qualify for a cash advance loan
To qualify for a cash advance loan, you must have a bank account with the lending institution. Also, you must demonstrate the ability to pay through regular salary remittances or deposits into the account. Additionally, your credit score must be excellent for a quick approval and lower interest charges.
With advances in technology and online banking, you don’t have to visit your local bank branch to submit a manual application. You can easily apply using a browser or a banking app installed on Google Play or the App Store. Still, you must contact your bank for such installations since verification is needed.
Most lenders will not ask for security or personal guarantors for cash advance loans. But, these requirements become obligatory if you have a poor credit score.
What Is A Credit Card Cash Advance, And How Does It Work?
A credit cash advance is a financing solution based on a certain percentage of future credit card receipts.
For example, if you need $1,000, you’ll get the funds now, and a certain percentage of your future credit card deposits will go towards clearing the credit.
There are various ways to withdraw cash with a credit card cash advance:
- Through an automatic teller machine (ATM
- By depositing a cheque at a bank
- Cashing at a financial institution such as a bank
Typically, the interest rates for such withdrawals are higher than standard purchases. Additionally, you’ll pay more if you fail to deliver on time since the facility doesn’t have a grace period.
There are also charges that the lender can peg on the amount. However, some lenders may charge a flat rate for all fees. You’ll most likely pay a usage fee if you withdraw from an ATM. Likewise, check clearance attracts a certain fee. Alongside interest charges, a cash advance carries a different type of balance for credit purchases. However, your outstanding monthly balance will be a sum of the credit purchases and cash advances.
Your lender often allows you to pay a minimum amount every month, which is essential for keeping a positive credit score. The outstanding amount accrues interest and increases your total payable amount or debt.
Risks of Cash Advance Loans and Credit Card Advance Loans
Despite the numerous advantages of these two credit facilities, there are some potential risks to borrowers. First, the interest rates are higher than usual loans, which subsequently increases the cost of borrowing. Secondly, the repayment period is too short, creating a budget hole in your finances. When this happens, you’re likely to enter into a debt trap by borrowing every month.
Eventually, a lack of a proper financial management strategy can balloon into a debt crisis, the leading cause of default. For example, young Americans taking credit card debts have a higher rate of delinquency than the rest of the population.
Credit cards are good choices for credit if you use them for emergencies rather than impulse buying. Consider consolidating your debts into manageable levels if you have a debt crisis.
Depending on your location, you can approach your lender and discuss the possible options. For instance, to get personal loans in Portland, Oregon, the lender will look at your debt profile and provide a workable solution.
It’s essential to check your FICO score at least twice a year and take crucial steps to improve the same. Credit reports are issued by main reporting agencies, including Experian, TransUnion, and Equifax.
Closing Thoughts
A cash advance and a credit card advance are popular because you get cash without a hassle and pretty fast. Also, you can take care of emergency cash needs quickly.
However, short-term credit facilities can attract high fees and interest rates, affecting your credit score if you fail to pay on time.
Lastly, they can develop into a habit and impact your spending negatively. It’s important to exercise restraint and only borrow to meet urgent expenses.
Georges has been working in Wall Street for the last 16 years trading derivatives with hedge funds. He has been an active real estate investor for over a decade. Georges graduated from HEC Business School in Paris and holds a master in Finance from ESADE Barcelona.
