As simple as the term may sound, a cash advance is nonetheless a loan. But, what type of loan is it? And, why is it called and treated differently than a loan? For several reasons the sugar-coated word is meant to be a marketing jargon and serving it as a friendly option. In genuine cases, this is surely a lifesaver as well. However, not knowing the complete norms and conditions may result in unwanted situations and economic crisis as well.
A Short Definition
In brief, a cash advance loan is a short-term cash loan that comes with extremely high-interest rates taken against a credit line on your credit card. In other words, it is an expensive loan and therefore is to be treated only as a life-saver. In several places having a credit-card allows one to apply for these cash loans from a bank or an ATM.
However, unlike cash withdrawal, a cash advance is given to you for your emergency. And, you have to repay as soon as possible.
It is Convenient
A cash advance is a convenient method to get some money immediately and right away. If you have your card, you are good to go. It is similar to getting an advance data on your SIM that will be deducted when you recharge.
- The convenience is made for reasons where you cannot get money through ordinary methods such as debit or low account balance.
- It is just like anything else put on your credit card. In this case, you buy cash, rather than goods or services.
The Underpinnings of the Process
It is important to understand how a cash advance works and though the method remains largely standard, the norms vary from the party, your bank, and so on. A lot of people rely on credit cards for their daily expenses, and in several situations, there may not be an option to pay via card. All they need is cash.
- With a cash advance, you can pay that street vendor, the farmer’s market produce and so on.
- This is useful for all those stops where you are paperless but the transaction demands some cash.
Using the ATM for Cash Advance
What makes the whole affair convenient and effective is the ability of ATMs to dispense money when needed. If your credit card has a PIN, you can get cash advances from an ATM. Or else, if there is a branch of your bank, you can get some cash advance directly from there as well. Most networks like MasterCard, Visa will accept any ID and can offer you the cash advance. With this form of money lending, you can get emergency paper cash when you need it the most and there is no way to get it.
The Expensive Part of Cash Advance Loans
The fees associated with these loans are variable. It is always decided by the card issuer.
- Some charge a flat rate and some a compound.
- Some charge a percentage of the amount you have been given as well.
- At times it is somewhere between 3% and $10, whichever is greater, and so on.
- The worst case is where interest is levied which is quite high, and you should avoid those kinds of cash advance or credit cards.
Thus it is advisable to use cash advance only when in dire situations because many banks use expensive interest rates often much higher than normal. The frequent use of this method may soon become a financial burden as well where the repaid amount might get way larger than the loan taken.