Cash Advance
The term “cash advance” refers to the short-term lending from a bank or any other potential lender. A feature of most credit cards allowing to withdraw cash from it can be also called cash advance.
Classification of Cash Advances
There is a wide number of cash advances but they all have in common high interest rates and fees. Some of the most popular cash advances are:
- credit card;
- merchant;
- payday loan.
Credit card. Credit cards have gained widespread acceptance in cash advance crediting. Due to the simplicity of the loan as it is made with the help of a regular ATM and its’ speed, credit card cash advances are widely used by bank customers.
However, credit cards usually have really high rates for cash withdrawal that can be up to 30%. There is no grace period for cash advance in this case as well. Moreover, credit cards assume fees for cash withdrawals. Besides, when using an ATM for withdrawing you might be charged a usage fee.
Merchant cash advance is called bank money lending extended to organizations. It is prefered by companies with poor credit scores struggling to cover their daily expenses. With the help of this credit they might be able to cover in future when getting profit, enterprises can extend their production of goods or services in order to increase the revenue. The creditworthiness of a company is usually estimated by calculations of money received by it through online payment services.
Payday loan is another widespread loan type. It is normally issued in specialized payday organizations. Payday loans are used when a person needs fast money and has a plan for paying it back quickly. The reason for the need for rapid repayments is high interest rates of the payday loans that can exceed 100%.
The amount of money lended is usually determined by two factors: local law regulations and the size of the borrower’s remuneration. When approved, the loan can be both given to the applicant in cash or deposited to the checking or savings account.
The main advantage of payday loans is in its’ simplicity. You are not obligated to wait for the bank approval. You should just write a postdated payday check with the required money amount. Then the lender will hand you money and then cashes your check when payday comes.
Advantages and disadvantages of Cash Advance
The cash advance is a perfect option when an urge for money occurs and the person lending it knows how to discharge a debt in a short period of time. But it is not always a good choice. In some cases cash advances can indirectly harm you. The best example is taking the cash advance for buying something you cannot afford. The consequences of impulsive shopping are the following: after feeling emotional lift for some time, expensive items will eventually lead to regret.
Another example of conditions you’d better not get cash advance under is right before declaring bankruptcy. Creditors while examining debts pay close attention to their type and the date. New credits will not be discharged. Any credit card use before declaration of the bankruptcy can be assumed as fraud.
It is also not a good plan to get cash advance for credit card bill coverage. In this case the potential amount of money a person has to pay back will grow rapidly. There is a high risk of getting into revolving debt.
