Cash advances vs. personal loans: Which is better?
Being hesitant or even afraid of borrowing money is not uncommon, and it’s easy to see why. People often associate debt with financial instability or long-term difficulties.
However, borrowing money can actually be a useful tool when approached with careful consideration. As long as you focus on understanding your credit and borrowing options and have a solid repayment strategy in place, borrowing can help you cover unexpected expenses, invest in opportunities, or consolidate debt.
Taking time to learn the differences between various types of credit—like personal loans, payday loans, or credit cards—can help you make smarter borrowing choices and avoid unnecessary financial strain. The key is knowing how to borrow smartly, so you don’t end up in over your head.
Two popular ways of borrowing money are cash advances and personal loans. While they both allow you to access funds, they’re sometimes confused with one another even though they serve different purposes. Cash advances are typically quicker and easier to obtain, while personal loans from places like your local credit union in Arizona usually offer better terms and structure. Depending on your specific situation, one option might be more advantageous than the other.
This article will explore the key factors you should consider when deciding between a cash advance and a personal loan so that you’ll have a clearer understanding of which option may best suit your needs.
Urgency
The main appeal of cash advances is speed. They are designed for immediate access to cash, making them ideal in emergency situations where you need money right away. For instance, in the event that you’re hit with an unexpected medical bill or need to make a last-minute payment, a cash advance can provide fast relief.
If you’re still wondering how to cash advance in credit card, this usually involves withdrawing the funds directly from an ATM or requesting a transfer to your bank account. The Maya Landers Cashback Everywhere Credit Card, for instance, allows you to withdraw cash advances at any Visa-supported ATM.
On the other hand, personal loans typically take longer before you receive the borrowed amount. They often involve an application process that includes a credit check and approval, which can take several days or even weeks. Because of this, personal loans aren’t suitable for emergencies where you need immediate cash.
On the other hand, a cash advance for gig workers can provide faster access to funds without the lengthy approval process, making it a better option for urgent financial needs.
Cost of borrowing
Cash advances are known for being expensive forms of credit. They come with much higher interest rates compared to other borrowing options, often starting at around 20% or even higher, depending on your credit card terms.
What makes them particularly costly is that interest begins accruing immediately, with no grace period. On top of this, there’s usually a transaction fee of about 3 to 5% of the amount borrowed. This means that it’s generally in your best interest to pay off a cash advance quickly before the costs skyrocket.
Personal loans, by contrast, tend to be more cost-effective in the long run, especially for larger sums of money. They usually have lower, fixed interest rates, which you’ll agree upon with your lender at the time of approval.
These rates are much lower than those of cash advances, making personal loans a better option for people who need to borrow a substantial amount and want to spread the payments out over time. Furthermore, with fixed monthly payments, you’ll know exactly how much you owe and when the loan will be paid off. This can make managing your finances more predictable.
Loan amount
Cash advances are limited in terms of the amount you can borrow. The available amount is usually tied to your existing credit card limit and most credit card issuers will only allow you to take a cash advance up to a certain percentage of that limit.
This means that, for larger expenses, a cash advance might not be sufficient. If your credit card has a low limit or if you’ve already used part of your available credit, the amount you can access through a cash advance could be quite small.
Personal loans, on the other hand, are usually much more flexible in terms of the amount you can borrow. Lenders generally base the loan amount on your creditworthiness, income, and ability to repay. This makes personal loans a better option if you need to borrow a larger sum of money.
Repayment terms
Cash advances don’t come with fixed repayment terms. The borrowed amount simply becomes part of your overall credit card balance, which means you’re required to make at least the minimum monthly payment.
However, because cash advances generally carry much higher interest rates than regular credit card purchases, carrying a balance for too long can lead to hefty interest charges. While there is no set timeline for when you need to repay the cash advance in full, the longer it takes, the more expensive it becomes.
Personal loans, on the other hand, come with clear, fixed repayment terms. When you take out a personal loan, you agree to a set period – usually anywhere from one to five years – during which you’ll make regular monthly payments. These payments are calculated based on the loan amount, interest rate, and term length, so you end up with a predictable repayment schedule.
Purpose of the loan
The purpose of borrowing money often plays a key role in determining whether a cash advance or a personal loan is the better option.
Cash advances are best suited for short-term, urgent cases where you need money right away. You can use them for emergencies such as sudden medical expenses or car repairs. However, because of their high cost and limited borrowing amount, they aren’t ideal for long-term financial goals or large purchases.
Personal loans, in contrast, are designed for larger, anticipated expenses. It often makes sense to use them for more significant financial needs, such as funding home improvements, consolidating high-interest debt, or covering planned medical procedures.
Personal loans are a more structured, longer-term solution, so they’re a better option for expenses where you need more time to repay or a larger amount of money. The fixed repayment terms and typically lower interest rates also make personal loans more suitable for financial goals that require careful planning and a longer commitment.
Once you understand your options and strategies for repayment, there’s no need to be scared of borrowing money. Whether you go with a cash advance or a personal loan, what you’ve learned about the pros and cons of each will help you make an informed decision. The best choice ultimately depends on what will support your financial well-being in both the short and long term.
