Cash Advance vs. Personal Loans: Which to Use?

25/05/2023

MANY OF US are suffering from the ongoing global inflation and looming recession. The worst part is wage gains remain very low despite the simultaneous hike in interest rates, products, and services. 

This is why access to fast cash is growing nowadays. It’s undoubtedly one of the ways for people in a financial bind to ensure they can make ends meet. Among the immediate credit products are cash advances and personal loans. 

Cash Advance

A cash advance is one of the borrowing options with easy, fast loan approval and almost instantly disburses funds. Hence, it’s often taken by borrowers who don’t have much time to go through the application process for a typical line of credit or loan. Also, it’s typically a short-term loan with a repayment period of within a few days or weeks. 

One popular type of it is called credit card cash advance. It’s borrowing money against a credit card account. To take it out, you need to withdraw the funds from an ATM using your card. Alternatively, if your provider has a physical bank, you can withdraw money in person. 

Although it’s a loan, it’ll still be considered a regular credit card transaction. In other words, it won’t require a credit score. However, its interest is higher than purchases charged to your card. Even worse, it starts accruing immediately. If you want to resort to this financing, it’s important to approach it with caution. 

A payday loan is another type of cash advance. It’s typically an online credit product, such as CreditNinja cash advance. Like a credit card cash advance, it doesn’t need a credit score. Instead, it’s an income-based loan. How much you can borrow is typically a portion of your next paycheck, hence the name.

The only downside of a payday loan is that it’s a very high-interest borrowing option, which is acceptable since it’s an unsecured yet fast-cash loan. However, you may be a victim of predatory lending if you’re not careful. That’s why you should always look for options, compare rates, and opt for better terms from reputable lenders. 

Personal Loans 

As its name implies, personal loans are borrowing options used to finance almost all kinds of personal expenses. For example, they can be used to cover costs for debt consolidation, weddings, home renovations, car repairs, medical emergencies, vacations, and funerals. They can be taken from traditional banks, credit unions, or alternative financial institutions. 

Like cash advances, personal loans are among the credit products with a simple, easy, and fast application process, mainly because they’re generally unsecured. Many personal loan lenders boast instant approval and funding as quickly as a few seconds, like the CreditNinja fast cash loans and more. 

However, compared to cash advances, personal loans have longer repayment periods. It’s beneficial for those who may have difficulty making repayments right after taking out personal loans. Additionally, despite having a longer repayment term, personal loans have significantly lower rates than cash advances. 

The only disadvantage of personal loans is that borrowers generally need credit scores to qualify. Credit scores are also a deciding factor in how much interest you receive. In general, you must have a credit score of at least 610-640 to qualify for a personal loan and at least 690 to get a very low-interest rate. 

Cash Advance vs. Personal Loans: Which to Use?

There are deciding factors that you should consider before choosing between a cash advance and a personal loan. These include the urgency of your financial need, the amount you need, the length of payment, and your credit score. 

Specifically, choose a cash advance if:

You need the funds as soon as possible. Withdrawing a cash advance from an ATM is the quickest route to access funds. However, remember that its interest is prohibitively expensive, not to mention the fees you must pay if you don’t miss paying on time.

You can pay it off quickly. Its high-interest rate is less of a concern, as long as you can comfortably afford to pay it off soon on top of your other expenses. Remember, the high interest of a cash advance quickly spirals into a much larger debt, so always assess your financial capability.

If you still have ample time to spare, you may consider a personal loan from online lenders and credit unions. They also offer same-day or next-day funding. The only drawback is that both may require solid financial records, including a good credit score. 

Alternatively, choose a personal loan if:

You have a good credit score. It’s a rule of thumb that anyone with a high credit score can immediately qualify for the lowest interest rates and fees. Overall, taking out any kind of loan with good credit is the cheapest borrowing option. 

You need bigger funds. Cash advances are generally short loans. Even if you opt to get a credit card cash advance, it’s usually capped at a percentage of your credit limit, which may be lower than the limit given for purchases. Personal loans, in contrast, can range from $1,000 to $100,000. Still, how much you can borrow depends on the lender and your creditworthiness. 

Final Thoughts

When you’re in dire straits, a cash advance and a personal loan can offer immediate financial backing. However, they still have their individual differences. In general, cash advances are short-term and with high interest but are best for immediate financial needs, while personal loans need credit scores but have better terms and rates.

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