Short-Term Funding Does Not Have to Spell Out ‘Credit Card Advance’
Personal loans and credit card advances - two financial products in a head to head race to win the hearts of consumers looking for the kind of quick fixes banks are not cut out to offer.
In many short-term cash emergencies, a traditional secured loan isn't necessarily your best bet to cover your needs. While they are financed by large financial institutions, namely banks, and generally have favorable terms, the application process is lengthy and drawn out and the service typically offered for larger cash amounts over longer repayment periods.
Enter the unsecured personal loan and its infamous rival the credit card cash advance. In a tight race against each other, these two lending options are the latest answer to bank loans, gaining a wider audience in recent years due to their catering to short-term gap needs. These credit products offer consumers competitive rates and an easy path to finance expenses at a moments notice.
Credit Card Advance: More Helpful or Harmful?
Each type of borrowing offers unique advantages. For instance, credit card advances are an easy way to access funds in an emergency, as you can even pull an amount from an ATM. They also work like a line of credit, allowing customers to take the exact amount they require.
Another strong benefit of a credit card advance is that you can choose your payment schedule and amount. In the case of advances, you repay it as you would normally pay a regular credit card transaction. Many credit card companies also offer interest-free introductory periods, which can help if you are able to repay the advance within a short period of time.
Unfortunately, credit card advances have significant disadvantages that could severely impact your finances down the road. Although they are easily accessible and available from an ATM, they tend to have higher interest rates than regular transactions. In some cases, advances can carry interest rates of up to 30%. If you are unable to pay your advance back during the interest-free period, your costs could spiral quickly.
Credit card advances also tend to feature transaction fees and other hidden costs that can make them risky if your finances are not great. Finally, credit card advances have a low ceiling on how much you can borrow at one time. If you demand a larger sum to cover your immediate needs, you might be unable to access what you require with a cash advance.
Loans Are More Flexible Than Ever Before
On the other hand, personal loans have become an incredibly accessible credit solution. Today, many companies offer loans for borrowers exhibiting a wide range of credit qualifications. Furthermore, applications and approvals have become quick and simple thanks to advances in technology. Personal loans tend to have much lower interest rates if you have good to excellent credit.
Additionally, personal loans offer short, fixed repayment terms unlike credit cards which can be repaid on a variable basis. As opposed to credit card advances, which can leave you in debt for a long period of time, personal loans are designed to get you back on your feet as soon as possible. One of the biggest benefits in this case is that your credit score is likely to be less impacted if you repay the loan on time regularly. If you continue to carry a balance on your credit card because of cash advances, your credit score may quickly deteriorate.
This is Why Personal Loans Make the Cut
While in some cases a credit card advance can help you out of a tough financial situation, the disadvantages that come with it make it a risky solution. If you are unable to quickly repay the loan, your credit and finances could face a serious setback.
Personal loans allow you to plan your debt and make sure that you can pay it off comfortably. With friendlier interest rates and a transparent process, personal loans are an excellent way to cover your short term financial needs without affecting your long term finances.
Before applying for a personal loan, check out our comparison of the best loan companies available.