This kind of advance is generally offered by credit card issuers, payday lenders, or other financial services, and is now also offered in the form of a cash advance by Koho. The goal of a cash advance is to give you an instant remedy for your monetary problems. However, be cautious, as you will find that the fees and interest rates for a cash advance are higher than those for a standard loan.
How Does a Cash Advance Work?
A cash advance can be thought of as a loan that allows you to borrow money from your existing line of credit. As mentioned earlier, a borrower can use a credit card to obtain a cash advance by making an ATM withdrawal with a card or by visiting a financial institution that provides access to cash loans. A person will then owe the money lent to them, along with other agreed-upon fees and payment plans.
It may seem simple, but getting a cash advance can come at a high price. Although most financial institutions offer cash advances, accessing credit card companies will require a person to pay a fee. This fee is typically a percentage of the money borrowed. In addition, the interest rates on cash advances are generally higher than those for purchases.
The Risks of Getting a Cash Advance
While a cash advance offers a quick solution for quick cash, do your best to tread lightly before going down this route. A cash advance can result in expensive finance charges, and utilizing this type of loan when you do not have the financial means to repay it can lead to an even worse financial situation. With bank purchases, a person may not be charged interest for up to a month, as long as they pay their credit card bill in full, but this isn’t the case with a cash advance. Since interest rates are higher and begin to accrue on the first day, this can result in sky-high interest rates and finance charges.
In addition, some financial experts believe that many individuals who take cash advances simply cannot afford to use other forms of credit. If you also don’t have enough cash to repay your loan, you may eventually depend on a cash advance in the future. This will make life more difficult, leading to a pile of credit card debt.
When Should You Use a Cash Advance?
There are some situations where it may be useful to use a cash advance as a form of credit, typically in times of emergency. For example, if you have a medical emergency or an unexpected bill, a cash advance can be a quick way to get access to money. However, before you use a cash advance, you should consider other options such as personal loans or asking family or friends, to make sure you use the best method for you in the long run.
Alternatives to Cash Advances
Before you take a cash advance, it is worth exploring other credit products to see if there are alternatives with better terms. For example, loans generally have lower interest rates than cash advances and can be a more affordable way to borrow money, particularly in the medium term. Most credit cards also offer other options with lower interest rates, such as balance transfer offers, which may provide a better way to access money.