Should I Get a Cash Advance or a Line of Credit?
A cash advance is a small, short-term loan for borrowing money to cover various expenses.
However, they’re quite different. One is a fixed loan that lasts for a short period. The other is a form of flexible revolving credit that you keep for the long term.
As a result, each option may be suitable for different types of borrowers. To help you decide, this article will explain how each loan type works and help you determine which is best for you.
What Are Cash Advances?
A cash advance is a small, short-term loan. While some cash advances are available on a credit card, even people who don’t have credit cards may be able to get an online or in-person cash advance. With this type of cash advance, you can provide information like proof of income and employment to a cash advance lender, then provide your bank details or a post-dated check for repayment in two to four weeks. In many cases, these loans don’t require good credit for approval. Once approved, you can often get funds on the same day. When the due date arrives, the lender typically debits your bank account or deposits your post-dated check for repayment, although other payment options may be available.
What Are Lines of Credit?
A line of credit is revolving credit, meaning you borrow up to a certain credit limit and repay at your leisure. Interest accrues and is added to outstanding balances. These tend to work well for larger and more ongoing expenses, such as home renovations since you can tap into them as needed. They’re also best for non-emergencies since these loans can take time to process. Generally, you may also need good credit history to qualify for one of these loans.
Cash Advances vs. Lines of Credit
Here are the key differences between cash advances and lines of credit:
1. Credit Score Requirements
Cash advances usually don’t require a good credit score. This can make them more accessible and give you peace of mind knowing you may still get approved with poor or fair credit.
On the other hand, many lines of credit require borrowers to have good credit in order to get approved. If you have poor or no credit, lines of credit are still available to you, but they may be more difficult to get.
2. Funding Amounts
Cash advances tend to be fairly small and are usually based on the size of your next paycheck. Many cash advances cap at around a few hundred dollars. Lines of credit typically offer much higher loan amounts, such as several thousand dollars.
3. Application and Funding Speed
Cash advances offer quick and simple applications. After proving your income and employment status, you can often receive funding that same day. Lines of credit may take a little longer to receive. The applications can be a bit more complex, and it may take a day or two to receive your credit line.
4. Repayment Terms
You repay a cash advance all at once. The lender will deposit your post-dated check or debit your account for the full amount on the due date. On the other hand, you can repay a line of credit over time. This may be more flexible, but you can incur interest on any unpaid balances.
The Verdict: How to Choose Between a Cash Advance and a Line of Credit
Cash advances and lines of credit each have their advantages, making them each ideal for different circumstances.
Lines of credit offer larger amounts and are more flexible once you receive them. However, they often require good credit, may have a more complicated application process, and it can take a few days to receive the line of credit. Therefore, these tend to work better for larger projects, like home renovations, or as long-term emergency funds.
On the other hand, a cash advance tends to be much smaller. However, cash advance lenders usually have more lenient credit score requirements. Plus, the application is fast, and you can get your funds the same day. Therefore, cash advances can work great when you need to cover urgent expenses, but your paycheck hasn’t arrived yet.
Once you decide which is right for you, shop with multiple lenders to find the best rates on the loan that you choose.