We all have those days when we feel that the biggest mistake we made was getting rid of the barter system and replacing it with money in exchange for goods and services. In the present day context, we find ourselves in a financial pickle every now and then. So what are our options when we need that little extra cash to meet our short term expenses? Many of us go either for cash advances on our credit cards or a personal loan. So which one is better?
Let’s go through the A to Z of credit card cash advance and personal loans to determine which a more viable option is:
What is credit card cash advance?
In simple words, cash advance is a service provided on your card which allows you to withdraw money from any ATM at any point in time. The maximum withdrawal limit for your cash advance will be up to your credit limit.
What are the advantages of a credit card cash advance?
- You have the option to withdraw the exact amount you need to meet your expenses.
- There will be no delay in receiving your money because you can walk up to any ATM near you and simply withdraw the amount you need.
- In case of an emergency, there is no need to approach your bank. Once you have registered for this service, you can withdraw anywhere and at any time.
- You have the liberty to pick your own repayment schedule for the withdrawn amount.
- You will not be charged a prepayment penalty if you pay off the withdrawn amount in a single payment.
What you need to consider when using a credit card cash advance:
The fact that it has become so easy to get extra cash as and when you need it, it might turn this one time occurrence into a habit, a really expensive one at that. Below are some pointers to keep in mind when using the cash advance facility:
- Use the cash advance on your credit card only in case of emergencies. For instance, if the merchant does not accept credit card payments and you are not carrying any cash.
- If you can pay for an item or service by credit card, then it is always better to use your card because the interest rate is lower on a credit card than on a cash advance.
- Repay your withdrawn cash advance as soon as possible and in full. This is because the interest on your cash advance will begin to accrue immediately and there is no interest free period for a cash advance.
- Be aware of what your withdrawal limit for cash advance is. If you withdraw more than your cash advance limit, you will incur additional fees.
- Always look for another alternative when making payments or when you need cash. Use cash advance only as your last resort.
What is a personal loan?
Personal loans are typically unsecured loans that are used for meeting your current or immediate financial needs. It is a popular choice among those who are looking to borrow money easily and quickly. Personal loans have a quicker application process, require minimum documentation and are disbursed faster when compared to other types of loans.
What are the advantages of a personal loan?
- Personal loans are easily and readily available.
- Personal loans require minimum or in some cases, no documentation.
- As there is no collateral or security involved in a personal loan, it requires very less processing time.
- Personal loans charge one of the lowest interest rates.
- Depending on your eligibility, you can borrow a significantly large amount through a personal loan when compared to a credit card.
- The repayment period on a personal loan can be as short or long as you desire.
What you need to consider when applying for a personal loan:
- You need to have a good credit history to apply for a personal loan and get one at the lowest interest rates.
- You must meet the eligibility criteria of the bank in order to qualify for the loan.
- Personal loans may or may not have prepayment penalties if you try to pay off your loan earlier.
Now that the basics of credit card cash advances and personal loans are out of the way, which is better?
Credit Card Cash Advance VS Personal Loan
Repayment/Fees and Charges
- Personal loans have a fixed repayment amount that you need to pay every month depending on your loan amount and tenure. The flat interest rate/EIR will be made clear to you before you sign your personal loan contract. You will be charged a single interest rate for an entire year without additional fees and charges.
- Each credit card cash advance transaction will cost you a minimum of 5% of the withdrawn amount or S$15. Additionally, you may be charged an ATM fee depending on which bank’s ATM you use for your cash advance transaction.
- You can get a personal loan in Singapore with an EIR starting at a little over 8% p.a. on the whole loan amount with a comfortable loan tenure.
- In addition to the cash advance fee, you will also be charged an interest on cash advance. The interest rate for cash advances accrue immediately if you do not make the required payment and will continue compounding until you repay the amount. There is no grace period/interest free period for cash advances. The average interest rate for cash advances in Singapore is 28% p.a.
So, if you compare the facts, a personal loan charges you an interest rate as low as 8% or 9% p.a. but on the other hand, the interest rate on cash advances averages at about 28% p.a. + the cash advance fee that you will pay each time you use the service. You can choose to repay any amount on a monthly basis for cash advances unlike personal loans where you have to pay a fixed amount every month. But in the end you will be paying a lot more in interest for a cash advance when compared to a personal loan. Therefore, if you are looking for a viable form of credit, then a personal loan is definitely a better bet.
Also, if you are looking at alternative forms of borrowing, you can opt for a personal line of credit that is offered against your credit card and charges a lesser interest rate when compared to a cash advance and has similar features to personal loans in terms of quick application process, minimum documentation and other benefits.