Credit card, cash advance or personal loan? Here are the pros and cons
If you need funds, three things usually come to mind – financing that purchase with a credit card, a cash advance, or a personal loan. But deciding which option is best for you can be a bit daunting. That’s because, even though they share the same purpose - which is to provide you with the funds you need - they also differ in many ways.
Here, we give you a straightforward overview of what each funding option is, together with their pros and cons, to help you arrive at a sound decision, depending on your needs.
What is a credit card?
A credit card, as the name suggests, provides you with a line of credit that you can use for purchases and cash advances (and depending on the credit card, sometimes also balance transfers). There’s a monthly due date when you need to pay the balance owing. You can choose to pay only the minimum amount required, or you can choose to pay the total outstanding balance by the due date.
Pros
- As long as you have credit available, you’re free to use it anytime and pretty much anywhere
- If you’re the type of person who pays your balance on time, you’re actually helping to build a good credit score
- Many credit card lenders offer reward points, such as airline miles or cashback. They can accumulate quickly with the regular use of the credit card
Cons
- If you don’t pay the outstanding balance off in full each month, you could find yourself with a never ending bill and be paying this off for many years to come
- Be cautious about your credit card usage. If you max out your credit, you could end up a little embarrassed when that new purchase doesn’t go through because you’re out of credit
- Make sure you don’t miss your due date for payment as this may adversely affect your credit score
- While having a few credit cards that you use and pay regularly may help you build your credit, applying for too many can erode your credit score and make the lender suspicious
- Interest rates on credit cards may be variable and can change with the market
- You may need a AAA credit rating to be approved for a credit card
What is a cash advance?
You can use your credit card to get a cash advance. Essentially, instead of buying something and paying for it with your credit card, you borrow from the credit limit of your credit card. Most credit card issuers will have a cash advance limit on how much you can withdraw, and it’s usually a percentage of the total limit.
Pros
- It’s quick and easy to get since it doesn’t require you to have money in your bank account
- There’s no approval process, like other types of loans, since your credit card’s limit has already been approved
- You don’t have to go through a credit check or submit any documents
- You can withdraw the cash from an ATM or over-the-counter at the bank, and there’s no collateral requirement
Cons
- There’s no grace period, which means the card issuer will start charging you interest from the day you withdraw the funds
- The card issuer may charge you a cash advance fee, on top of the interest charges you’ll accrue
- And don’t forget - you may have to pay a fee if you use an ATM from another bank to withdraw the cash
What is a personal loan?
A personal loan is a type of instalment loan, where you borrow a fixed amount of money and pay it back in fixed instalments along with any fees, charges or interest, over the agreed term of the loan. The loan term and the amount of the loan can vary depending on the lender, but here at Safe Financial our personal loans range from $1,000 up to $5,000 with loan terms from 22-52 weeks.
Pros
- Personal loans are versatile, and you can use the funds in many ways, such as debt consolidation, car repairs, medical bills, a dream vacation, upgrading your electrical appliance, a wedding – the list is endless
- Fees, charges and interest will vary depending on the lender and the amount borrowed, and may be lower than those charged on credit cards. At Safe Financial, for loan amounts of $2,000 or lower, you’ll be charged an establishment fee and a set monthly fee instead of interest - and there are no exit fees if you wish to repay early!
- You don’t have to have a perfect credit score as many lenders approve personal applications even if your credit score isn’t that great
- Personal loans are usually quick and easy with the majority of lenders offering an online application process and fast approvals
Cons
- Repayments are fixed over an agreed period. This is usually viewed as a positive feature by many borrowers so they can budget accordingly, but for some people, they prefer the flexibility of alternating payments each month
- You will need to reapply for another loan if you find yourself in need of further funds
- Like all loans, if you fail to make your repayments on time, your credit score may be negatively impacted
In a nutshell
Credit cards, cash advances, and personal loans all have their uses. Fees, charges and interest rates can also differ from one lender to another. Your choice depends mostly on your financial needs and objectives. Here at Safe Financial, we think small personal loans are versatile and offer value when you’re looking for money in a hurry – and if that sounds like you, we’re here to help. Just take a look at our cash loans from $1,000 to $5,000 to find out how quick and easy it is to get your hands on some extra funds. Once a loan is approved, the cash is usually in your bank account within a few hours - so you can have the funds you need in next to no time!