Can cash advances be considered a form of credit? These short-term loans are not credit as in there is no revolving account. What they offer is fast cash based on a signed contract in order to pay the loan in full just a few short weeks later. What are some differences and similarities between credit and short-term loans?
Cash advances are onetime loan transactions.
When a person applies to a direct lender, the application is for a one-time money transfer. Once approved, the cash goes directly the person’s bank account to be spent however. The loan terms are based on a signed contract in which the borrower promises to pay back the loan plus fees in just a few short weeks. If this payoff does not happen on the scheduled original date, interest will apply to the unpaid balance.
Interest is applied to both cash advances and credit cards. As long as the balance remains unpaid, there is interest being charged for the unpaid amount. The amount of interest depends on the individual lender. Short-term loans are often considered high interest loans. Some creditors will charge similar rates and at times higher amounts. Either way, keeping unpaid balances out for an extended period of time will only cost more.
Revolving debt keeps the balance open ended. As long as there is available money, a person has access to it. The required minimum payment is usually about 5% of the outstanding debt plus fees. This monthly payment seems more attractive to consumers because of the smaller budget demand. Over the long-run, a person will spend more paying off the loan that a short-term loan paid on time.
Cash advances should not be treated like revolving accounts.
Those people who treat cash advance debt as other monthly credit bills often end up with much bigger financial difficulties. The fast cash loan helped solve one problem but ended up creating further budgeting hardships. The term of the loan is short, so each new term, the interest will accrue keeping the balance high until the actual principle is paid down. For those who only make the minimum payment each month which is fees only, the principle balance never changes. In the meantime, so much money is being paid into fees that other budgeted categories end up suffering. Every few weeks, the payment is due. Don’t think that cash advances can be treated the same as other credit.
One of the best things a person can do for their finances is to understand how each of these third party money transactions work; both beneficial and damaging properties of each. Don’t think that only short-term loans are damaging based on reputation. If you look into personal debt nationwide, you will see that credit debt problems outweigh the cash advance “cycle of debt.” They both promote a cycle of debt when balances are left unpaid. One pushes for a fast payoff, where the other allows lengthy payment options. Credit card companies are not the billion dollar businesses they are because they don’t want people to be in debt to them. Consider your options, the pros and cons of each, and apply for help with the service which fits best into long-term budget.
