A cash advance or loan can also be termed as a short-term loan and is a service that is provided by financial institutions, charge card issuers, alternative lenders and credit cards. Cash advance services offer cardholders the option to withdraw their cash through an ATM or at the counter of any bank or financial institution. This loan exceeds up to a certain limit of money that has to be repaid in full along with associated interest rates. The limit is applied through a pre-set percentage depending on the credit required.
A cash advance loan can often charge additional fees at the time of return with steep interest rates. However, they are still attractive to consumers as they have beneficial features such as fast approval and processing times, as well as, quick funding criteria.
Below we have mentioned a few types of cash advance loans where one of the major types of receiving cash in advance is through the credit card. The fee made on the credit card is often higher than other transactions of the card as the interest rates are higher with added fees. The interest keeps increasing from the day cash was borrowed until the day it is repaid.
Type Of Cash Advance Loan
There are various types of cash advance loans that are the common denominators of it and hold steep interest charges and fee rates.
- Credit Card Advance
- Merchant Cash Advance
- Payday Loans
Credit Card Advance
As mentioned above, receiving cash advance with a credit card is certainly the most popular type of borrowing money. The cash is borrowed by the consumer through a financial institution or a bank with a line of credit that has a certain limit. Depending on the credit card company, the money can be withdrawn through an ATM. In addition to that, it can also be received through a cheque that is cashed or deposited in the bank.
According to several guidelines of credit card network, few purchases made with the card are viewed as cash in accordance with a cash advance which acquires high-interest charges with lack of the grace period. This includes the money orders, gaming chips, buying lottery tickets, paying a certain amount of taxes or bills, having prepaid debit cards, etc.
Furthermore, if you need cash asap or know someone who might need it, then choosing or preferring the credit card cash advance loan is certainly the best option to consider. You’ll be able to withdraw cash with fast approval until the limit reaches. Also, you will have plenty of time to return back the amount with a few additional charges and high-interest rates. But of course, it does not matter as long as you are able to pay bills on time.
Below we have described how credit cards charge additional fees and high-interest rates.
Interest Rate and Fee Charges Of Credit Card
For those who don’t know, the credit card cash advances typically hold an interest rate that is higher. The rate is particularly higher than the rate of regular purchases. You’ll be asked to pay an average amount of 24% that is considered to be 9% higher than the average annual percentage rate applied on purchases. Also, the credit card issuers charge the interest rate with no grace period. It is a period immediately after the due date for an obligation with the late fee. If an individual fails to meet the deadline, the obligation still applies.
Furthermore, credit card cash advances carry separate interest rates based on the balance of credit purchases. Not only the interest rates but they also withhold separate balance and limit. However, the monthly repayment of the card and it’s fees is applied to both the balances. If you are someone who repays the minimum due amount, the card issuer such as your bank is allowed to apply low-interest rates according to the percentage of the whole amount.
Moreover, the additional fee that is also charged on credit card cash is either a flat rate or a percentage of the particular amount that was taken as a loan. If you’ll use ATM to withdraw your money, you will be charged a small amount of extra fee. Other than that, it is considered that the rate for purchases of cash advance balance is directly proportional to the additional interest for months or even years. The interest will not increase once the borrower will pay the whole amount together or in large quantities.
It is certainly a plus point that credit card cash advances are quick and easy to obtain. However, in most cases, these loans do not qualify for low-interest-rate introductory services. Luckily there are more short-term finance solutions for you to choose from.
Other Types Of Cash Advances
In most cases, cash advances commonly include borrowing the money from a credit card. But there are other types of cash advances too that include merchant cash advance and payday loans also known as a short-term unsecured loan.
Merchant Cash Advance
The merchant cash advance loan is a type of loan that is received by companies or merchants through alternative lenders and financial institutions such as banks. Generally, the businesses and entrepreneurs that have lower credited amounts are the ones that use cash advances to become capable of financing their activities. In most cases, these advances are paid with a contract of receiving a portion of the profit businesses will receive from the sales of their services. However, alternative lenders often investigate the creditworthiness of the borrower by looking at various data points as well as the online accounts of them. Before lending the money, they see whether the merchant receives payments online or through cheques.
Payday loans the types of loans that are issued by payday lenders ranging from 50$ to 1,000$. They also charge a number of extra fees that are mainly around 15$ to 100$ in total (even more in some cases). Along with the fees, the interest rate is also applied.
These are the short-term loans that a borrower is supposed to pay on their next paycheck. If they wish to extend the loan, they will have to pay additional charges. Moreover, some companies offer payday loans to their employees and then deduct from their next paycheck.