A cash advance is a short-term loan offered by a bank or an
NBFs lender. The cash advance loan also refers to the service provided through
credit card where the issuing authority allows the cardholders to withdraw a
certain cash amount as per your approved eligibility. Cash advances generally
come with steep interest rates and fees, but yes, they are attractive among
borrowers as you get the fast approval and availability of the cash quickly. Cash
advance or instant loans
are very convenient to manage any emergency.
Advantages of Cash Advance Loans
We all need some additional cash to cover an unexpected
expense or a shortfall toward the month's end. Cash Advance Loans are the quickest way to get money to cover those
surprise expenses.
But having said this, Cash Advances come with some cons or
negatives too:
ü Processing
Fee - In cash advance loans, the processing fee is either flat or fixed
amount or a certain percentage, i.e. 1% to 5 % of the loan amount. Lenders pick
the higher one.
ü Higher
Interest Rate - Cash Advances come
with the highest rate of interest ranging from 22% to 30% as compared to any other
loan.
ü Immediate
Interest Accrues - The interest rate in
case of cash advances is charged aggressively for example, in credit card,
you'll be charged from the day you take the amount, but in case of cash advance loans, you have to pay the
interest amount for the whole period even if you pay back the loan amount.
This way Cash Advances are very aggressive and expensive,
which also includes certain taxes, this makes hard for the people to pay back
who take Cash advance loans.
How
Cash Advances Can Harm Your Credit Score?
Taking cash advance
loan will not impact the same, but it will start hurting when you begin
utilizing the money. In any case, taking a cash advance can place you in a
difficult situation that would bring down your Credit Score rating.
The cash advance loan
is added to your balance parity, which changes the pattern of your credit use.
Credit Utilization is a score that takes a gander at the amount of your all
credit which you're utilizing. Ideally, it is recommended to keep this number
under 30%. Interest also starts accruing from cash advance, which makes it
further difficult for the person to clear all debts. And if you miss any of the
loan repayments, this will more worsen the situation for you.
How
Cash Advance Loan Is Different From Payday Loan?
If we talk about the form their basic structure and
practicality, both are more or less similar. In both cases, the borrower gets
the loan amount immediately and for a shorter period with hefty processing fees
and higher interest rates.
The main difference in Payday
Loans as compared to Cash advance is that they are, decided based on your
pay cheque rather your credit history. The payment of Payday loan is done
immediately on the very next day of your salary credit through post dated
cheque which you give to your lender at the time of loan approval and
disbursal.
No matter which loan you take, but if manage it smartly and
responsibly, it will help you to manage any financial stress is an easier way.
