Personal loan vs cash advance on credit card

When they need urgent cash, many people take cash advances on their credit cards. Interestingly, banks can charge up to 45% interest on an annual basis on the unpaid amount until such time as contributions are cleared. It’s clearly a huge interest to pay in the current scenario. In addition, when there are unpaid contributions, any additional expenses incurred are also charged at increased interest rates. In many cases, people take out personal loans to settle their credit card debts. There are divergent views on this type of financial management because the losses in terms of interest paid are high in both cases.

Rupee banknotes of various denominations can be seen in this photo taken on April 30, 2012. REUTERS / Vivek Prakash / Files

In favor of cash advance by credit card

There are a few compelling benefits of taking credit card cash advances, which is why so many people use it in the first place. Some of these benefits are:

– There is absolutely no delay in the sanction because one can simply walk to an ATM and withdraw the money.

– We have the possibility of drawing exactly the necessary amount and no more.

– There is no need to approach a bank and the money is accessible from remote locations in an emergency.

– The repayment schedule of the cash advance is according to the choice of the digger and not according to the fixed schedule of the bank.

– There is no prepayment charge for credit card cash advances.

– If you are able to pay the contributions during the interest-free period, this option turns out to be the cheapest.

For the benefit of the personal loan

Since such a facility is used during the period of urgent cash need, the chances of being able to pay immediately afterwards are less. In the case of a credit card if one cannot repay on time the charges are prohibitive. However, in the case of personal loans:

– The repayment period is long enough to give the burrow some breathing space during the repayment.

– The interest rate of a personal loan, although it is higher than that of other loans, is always less than half of the penal interest charged on the outstanding credit card contributions.

– The amount that can be withdrawn with a cash advance by credit card is limited while in case of personal loans the amount is much higher, which can make a significant difference to the needs of the burrow.


If the burrower had a balance of Rs. 50,000 on his credit card dues which he will pay interest on @ 36% pa Suppose he can only pay Rs. 5,000 per month. At this rate, it would take 13 months to completely clear that debt and would end up paying interest of Rs. 10,368. But if he decided to take a personal loan of Rs. 50,000 instead of paying his credit card bill with interest @ 18% for 1 year, his NDE would come to Rs. 4,584. In this way, he will manage to clear his debt within 12 months at a total cost of only Rs. 5,008, thus saving more than 50%.

While both ways to raise instant funds have their own advantages and disadvantages, it is up to the client to decide based on their own financial situation.

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