Cash Advance Loans - How to Apply, Features and Key Points

Many people consider a cash advance loan to fund their urgent cash requirements. Customers can quickly receive cash through such loans. Sometimes customers can withdraw the advance from a local ATM if their credit card company disburses the loan.But the ease of loan disbursement and the relaxed eligibility criteria can often lead to a debt trap where the borrowers fail to keep a tab on their spending, and debt begins to pile up fast.

Cash advance loans are also known as payday loans. These are short-term unsecured loans usually provided to the borrowers to meet daily expenses or quick relief from a temporary financial crunch. For instance, a cash advance loan can be an ideal option in case of non-payment of salary by the employer.Borrowers are expected to repay a cash advance loan in a single installment with interest as soon as they receive their salary. The maximum limit of a cash advance loan usually depends on the loan applicant’s salary.

• Easy Disbursement Unlike conventional loans, a cash advance loan can be quickly disbursed, which may take some time for approval. A lender can give such loans within a few minutes without any long waiting period.
• Lenient Credit Check These loans are designed to help people battle the temporary financial crisis. Since the amount and loan duration are usually low, lenders usually sanction such loans without a stringent credit score .
• Minimum Documentation and Formalities Despite being unsecured loans, cash advance loans don’t require extensive documentation, unlike personal loans or any other loans. In most cases, the lender just asks for a savings bank account and some of the borrower's basic financial and personal details.

People who find it hard to meet sudden fund requirements can use cash advance loans to stabilize their finances. Following are the features that can make them a viable option for some individuals.

• The loan amount is usually small and depends on the individual's salary. The amount can be as low as Rs 10,000.
• The loan tenure can last up to 60 days.
• Since the lender bears the high risk of credit default, interest rates can be much higher than any other conventional loan.
• A cash advance loan can also attract cash advance fees. If the loan is provided through a credit card, then the costs are chargeable over and above the credit card transaction fees.

• Traveller’s cheque
• Lottery tickets
• Gambling
• Using an ATM outside India for a cash advance

• Don’t Ignore The Fine Prints The terms and conditions of such loans can vary among different lenders. Therefore, it’s always advisable to take your time to read and understand the fine prints to avoid being charged extra.
• Prioritise Cash Advance Repayment Such loans don’t come with grace or an interest-free period. This means that the interest might be charged right from the first day of receiving the cash advance. Therefore, it is wise to repay the amount completely as early as possible.Moreover, credit cards usually provide a credit rollover facility where you can make a minimum payment, and the rest of the credit is rolled over for future repayments. Avoid using this facility if you have availed of a cash advance loan on your credit card, as you will end up paying a significantly higher amount through miscellaneous charges.
• No Purchase Protection Many lenders offer purchase protection of up to six months on credit card purchases. However, such facilities are not available for purchases made with cash advances.
• Avoid Certain Purchases If you have received the cash advance through your credit card, then avoid the following purchases through the same card, as all these purchases can add up to your cash advance amount.

You can consider the following options as an alternative to a cash advance loan.

• Curtail Your Expenses Unnecessary expenses can silently erode your finances. Write down all your expenses in one place and find out the unnecessary ones that you can curtail to bring down your monthly expenditure.
• Consider a Personal Loan A personal loan is an unsecured loan, but its interest rates are relatively lower compared to cash advances. Besides, you can also get flexible repayment options and a longer loan tenure that can help you stabilise your finances.
• Ask For Short Term Loan from Employer Some employers can help their trusted and experienced employees by providing them with short-term loans. Borrowing from the employer can spare the borrower from paying exorbitantly high-interest rates and associated charges.
• Take Help From Friends and Families There is no shame in borrowing from your friends or family members if you intend to pay them back in time. You can save yourself from falling into a debt trap of mounting outstanding repayment amounts if you can arrange the same amount from your well-wishers.

To sum up, a cash advance loan might not be a good option as it requires a lot of financial discipline to close such loans. However, if you have exhausted all other possible sources of arranging funds, then you can consider taking such a loan, provided that you don’t make it a frequent habit.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.