The Difference Between Personal Loans & Cash Advances

Personal Loan vs. Cash Advance: What’s The Difference?

If you’re in need of some extra funds, there are plenty of options out there that can help boost your bank account. If you’ve been looking for a fast solution to your financial needs, a personal loan or cash advance may have popped up in your search. If you’re having trouble working out the difference between the two, you’ve come to the right place.

In this guide, we give a quick rundown of what a personal loan and cash advance is, the differences between the two, and what to consider before choosing either option.

What is a personal loan?

In a nutshell, a personal loan is where you borrow money from a lender and then repay it (plus interest) over an agreed period of time, known as your loan term. Personal loans can be a great way to get your hands on the funds you need through a quick and easy process.

With a personal loan, you will be charged either a fixed or variable interest rate and these rates are based on a number of factors, like your credit history. Depending on the lender you borrow from, you may also be charged some fees on top of your loan such as application fees, monthly service fees as well as missed, early, and extra repayment fees.

Personal loans can be secured or unsecured, and this will also affect your interest rate. A secured loan is where an asset you own, such as a vehicle, is secured against your loan. This type of loan generally comes with a lower interest rate than an unsecured loan, which doesn’t require any collateral.

What is a cash advance?

If you have a credit card, your credit card provider may allow you to withdraw cash from your credit card account. This is known as a credit card cash advance and it can give you quick access to an unsecured loan, with no application or underwriting required.

While this can be a convenient way to get your hands on cash if you need a quick and easy fix, it can cost you more than making a credit card purchase for the same amount. Why? The interest rate on a cash advance is typically higher than the standard variable purchase rate on your credit card. There’s also usually a fee for a credit card cash advance. This can be a percentage of the full amount or a flat rate set by the lender.

In regards to the interest on your cash advance, it’s important to note that there’s no interest-free period on a cash advance. So interest will apply as soon as you’ve borrowed the money. You’ll stop paying interest once the cash advance, cash advance fee, and the interest is paid in its entirety.

There are a few ways to receive your cash advance – let’s go through them:

  • At an ATM: Withdrawing cash directly from an ATM using a PIN. You may be charged a fee when withdrawing cash from an ATM.
  • Direct transfer: Transferring money into your transaction account from your credit card account through your online banking platform.
  • Cash transactions: Purchasing travellers cheques, money transfers, or wire transfers. This also includes gambling and gambling transactions such as purchasing a lottery ticket.
  • Convenience cheque: Writing a convenience/access cheque, issued by your credit card provider. You can then cash the cheque or deposit the funds into your bank account.

What should I consider when choosing between a personal loan and a cash advance?

So how do you decide which is the better option for you? If you have a credit card, a cash advance may appear to be a quick and easy way to obtain credit urgently. However, due to the high-interest rates and fees often associated with a cash advance, this option might be more suitable for those who have the capacity to repay the money in a timely manner. With a personal loan, the repayments might be more manageable due to the longer loan term.

It’s also important to consider the full terms and conditions as well as if any fees and charges apply. You should also consider the loan repayment options available to you.

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Andy Andy

AUTHORITATIVE SOURCE

Andrew Bell

Since founding Nifty in 2016, Bell has continued to make waves within the local financial sector for his continued ambition and willingness to adopt emerging technologies.

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