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Which Is a Better Financing Option: Credit Card Cash Advance or Personal Loan?

Adhil Shetty
Image source: Dragana_Gordic/Freepik

Q: While facing a cash crunch, which is a better financing option: credit card cash withdrawal or a personal loan? – Shailesha

Ans: It’s not uncommon for many credit cardholders to use their card to withdraw cash from an ATM while facing a cash crunch. This might appear to be a convenient option, but is an expensive proposition because of costs involved. What many do not realise is that unlike other regular credit card spends (like swipes at the supermarket or online payments on a shopping portal), cash withdrawals do not come with the usual 50-days interest-free period. In fact, interest is charged on credit card cash advances from the very day of withdrawal until full repayment. Plus, there’s a separate cash advance fee. Even the interest charges are generally higher than the regular interest rates that apply to your credit card. So, do factor in the steep charges involved before considering this option.

You can consider personal loan over credit card cash advance. However, these unsecured financing facilities also charge interest anywhere in the range of 11% to 17%, apart from a separate processing fee. Yet, this option will be cheaper than cash advances. That being said, you’ll still need to meet certain eligibility requirements, furnish few documents and have a decent credit score to get a personal loan with good repayment terms (like best-possible interest rates). Also, at times it might take a few days to get your loan application approved.

You can also consider some other options like gold loans or credit card-linked pre-approved loans (if your card has that facility) to raise funds quickly. While the former is likely to charge lesser interest than a personal loan, the latter might be cheaper than a cash advance. But whichever financing option you choose, ensure you’re clear about the interest rates among other terms and conditions, and can afford to repay the instalments every month.

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