What are cash advances? What are the pros and cons of them?

July 20, 2021

What are cash advances? What are the pros and cons of them?

By : Ellie Brown

The concept of a loan is well known to everyone. People know what the advantages and disadvantages of borrowing money from an independent lender or a bank are. Moreover, borrowers generally do not raise many obligations to pay extra money in the form of a rate of interest.

However, nowadays, there has come a new concept in the financial market known as cash advances. Whether it is similar to a borrowing loan or not, it is better not to apply for such a new mode of arranging funds. However, many countries are working on these concepts, and citizens of those countries are sharing good feedback repeatedly.

Before you apply for cash advances, let me tell you what it is actually and how it can benefit you and what are the disadvantages of this new concept of borrowing.

What are cash advances?

The process of borrowing money which helps a person in an emergency by lending cash to fulfil a specific purpose and needs to repay the entire amount within short notice, is known as cash advances. It ultimately does not like debt, but lending money can be considered as a part of the concept of debt. Actually, it comes under a credit facility that too with a short term repayment option.

Unlike borrowing money in the form of debt, if a person wishes, he can lengthen the repayment period as per his wish. But in the case of cash advances, there is no possibility of requesting an extension of the period. On the other hand, this type of cash advances always required security, which enhances collateral damages.

However, unlike applying for a loan, there are not many paper works associated with cash advances. Only some basic formalities need to be done. There are three types of cash advances available in the economic market: payday cash advances, business cash advances, and credit card cash advances.

Pros of cash advances

  1. Emergency requirement fulfilled

One of the essential benefits of cash advances includes a quick process. Whenever you need an emergency fund, you can’t wait for 2-3 working days to disburse the loan. In that case, cash advances are beneficial as it serves the immediate need of fund. As mentioned, there are very little paper works, so it becomes easy to sanction your loan within a few hours.

  • No credit check

While credit score plays an integral role in sanctioning loans, the moneylender hardly goes for a credit check while applying for cash advances. For this reason, guaranteed loans from direct lender have no longer remained a critical issue. So, if you have bad credit score do not worry because you will definitely get assistance and monetary help while you applied for cash advances.

  • Paperless formalities

The advancement of technology demands paperless processing as well as application. Therefore, cash advances primarily function online, and very few physical signatures of the borrower are required. Due to completing 90% of the work online, the entire process becomes quicker than ever.

  • Does not associated with a high rate of interest

The only reason for its popularity in the financial market is the minimum rate of interest. This type of debt facility is strongly associated with security and shorter-term, so there is no question of charging a higher interest rate. Due to minimum and sometimes no interest rate, borrowers would like to apply for cash advances instead of a general loan.

Cons of cash advances

  1. Chance of collateral damages

The process of sanctioning a loan is slow and often gets cancelled due to poor credit scores. Still, it can’t be undeniable that every type of loan is not associated with collateral damages. Moreover, even though an unsecured loan, a borrower can easily borrow a good amount of money. On the other hand, cash advances are strongly associated with collateral damages even if you borrow £500.

  • Hidden charges and consolidated interest rate

Cash advances providers always attract borrowers by saying that they do not charge extra money in the form of rate of interest. It will become visible how they apply charges without letting people know. Moreover, cash advances providers also charge a good amount of money while taking back the lent fund. If you calculate, you can easily find out that even the interest rate is higher than a secured loan.

  • Short term loan

Repaying money within short notice seemed to be quite impossible to borrowers. Even a borrower has no scope left for lengthening the repayment term because initially, he needs to sign a document which is an agreement paper containing terms and conditions. Therefore, chances of becoming a defaulter can’t be avoided.

  • One time repayment

Whatever the amount you have borrowed, there is no room for monthly repayment. A borrower who has taken cash advances hardly get time for repayment because it comes with a short term loan. This is why the chances of collateral damage are higher than ever.

When a person borrows cash advances, he needs to pay the same amount with added charges and a consolidated interest rate after a stipulated time.

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