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Discover the key differences between personal loans vs cash advance loans and choose the right option based on your needs. Click here to know more.
At some point in life, we all need money to address some financial challenges. Whether for sudden emergencies or for buying a new gadget, you might need some urgent financial assistance.
At this point, people tend to choose a personal loan or a cash advance loan. However, choosing between these loans depends on the urgency of availing the loan.
Let us dive into this blog to understand between personal loans vs cash advance loans.
In addition, by exploring the pros and cons of both loans, you can be able to understand which one is better for you.
What Is a Personal Loan?
A personal loan is an unsecured loan that does not require much documentation. For any legitimate financial purpose, you can request this loan.
Based on the terms and conditions of a financial institution, a personal loan has a particular repayment tenure.
Individuals can use this loan for purposes like buying a gadget, medical treatment, home renovation, wedding, and so on.
How Does a Personal Loan Work?
To analyse the key difference between personal loans vs cash advance loans, it is crucial to learn the basics of a personal loan.
After applying for a loan, you need to submit all the necessary documents. After checking your creditworthiness, banks make a loan offer.
If you accept the offer, they transfer the funds straight into your bank account. The annual interest rate after availing of a personal loan depends on the individual’s credit score, bank requirements, and repayment tenure.
What Is a Cash Advance Loan?
A cash advance loan is a short-term loan, which is provided by a bank or any credit lender. In this loan, credit card holders used to withdraw a specific amount of cash based on their available credit balance.
A cash advance loan is an attractive, short-term financing option for the borrowers. The primary reason behind this is that the approval and disbursement process takes very little time, which makes it more convenient for them.
In a cash advance loan, as a borrower, you are taking the money against your card's line of credit. You can visit your bank branch and request a cash advance with your credit card.
Additionally, you can also withdraw the cash by going to the ATM. By entering your credit card PIN, you can avail the cash advance. However, if you do not have the PIN, you can request it from your card issuer.
Furthermore, this category of loan is always beneficial for a borrower as it incurs a one-time upfront fee that is calculated based on the total amount advanced.
In addition, a cash advance loan does not require a separate application process like other loans, which makes it readily available for eligible credit card holders.
However, one of the drawbacks of these loans is that the loan amount is limited to a particular percentage of the total credit limit. A lower cash withdrawal limit is also a major limitation of the cash advance loan.
Types of Personal Loan
In India, personal loans can be of different types, whether it is for home renovation or medical purposes. Here are some common types of personal loans that people tend to use:
Debt Consolidation Loan
A debt consolidation loan allows borrowers to consolidate multiple ongoing loans. It provides the feature of combining all your debts into one loan, which has a lower rate.
This helps reduce your burden and make your loan repayment process convenient.
Instant Personal Loans
An instant personal loan is a short-term personal loan that provides urgent access to funds.
These loans typically take a maximum of 24 hours to process, ensuring borrowers receive the required funds promptly to meet their requirements.
Since the loan amounts are relatively smaller and the tenure is shorter, the approval, as well as the disbursal process, is very fast.
Personal Loan for Students
This category of personal loans is for students who are seeking financial assistance for higher education.
This loan amount covers the overall expenses of the students, including study and living costs, with a repayment tenure of 10 years.
Types of Cash Advance Loan
There are a variety of cash advance loans in India. Each of these loans has different purposes to meet the individuals' needs. Here are some common types of cash advance loans that you need to know:
Credit Card Cash Advances
Credit card cash advances can be used to access funds quickly. These are available from ATM withdrawals or bank checks. However, this type of cash advance comes with higher interest rates.
Merchant Cash Advances
Merchant cash advances are a popular loan that is provided by banks to businesses with imperfect credit. Businesses repay these advances through future credit card receipts or a portion of their sales funds.
Payday Loans
Specialised lenders often offer payday loans that come with high fees and interest rates. These lenders do not check credit scores but base the loan amount on your pay cheque and other rules. Once approved, the money is given in cash or deposited electronically.
Personal Loan vs Cash Advance Loan
To become aware of which type of loan is relevant for your situation, you need to understand the basic difference between the loans.
The below table highlights some key differences between personal loans vs cash advance loans:
Criteria
Cash Advance Loan
Personal Loan
Interest Rates
Average range is 15% to 27%
Average range is 9% to 44%
Loan Duration
Short repayment tenure
Long repayment tenure
Processing Fees
The processing fee ranges from 2% to 5% on withdrawal
The processing fee ranges from 0.2% to 2.50% on the total loan amount
Uses
Urgent purchases that require immediate funding
To consolidate debt, cover unforeseen expenses
Loan Limit
Up to 30% to 40% of the credit limit
Depending on the lender
The Bottom Line
Understanding personal loans vs cash advance loans is crucial for borrowers to choose one of them, according to their situation.
With the comparison of their key differences, borrowers can decide whether they can go for a short repayment period or a long one.
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Frequently Asked Questions
- What is the best option between personal loans and cash advance loans?
Based on the comparison of personal loans vs cash advance loans, the best option depends on the requirements of the borrowers' needs.
This is due to differences in repayment tenure, loan amount, and interest rates between the two types of loans.
- What is the difference in interest rates between cash advance loans and personal loans?
Interest rates on cash advances are generally much higher than personal loans, starting at 15%.
In contrast, personal loans offer more affordable rates, which start at 9% based on the borrower's credit profile.
- What are the eligibility criteria for availing of a cash advance loan?
To avail of a cash advance loan, borrowers' age must be between 23 and 60 years old. Additionally, the monthly income of the borrower should range from ₹30,000 to ₹50,000.
