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Short-term Loan vs Credit Card

Short-term Advance vs Credit Card — Which is Better?

If you need quick cash, there’s a couple of things you could do: get a short-term advance or use a credit card. With a short-term advance, you just have to complete the application process and if you get approved the funds would be transferred to your account on the same day. With a credit card, go to an ATM and withdraw the money. So, which do you prefer?

Short-term advance and credit card – How do they work?

Both short-term advance and credit card are types of credit which can be used for whatever reason. There are no restrictions on how you use the funds, which makes it suitable for emergencies, home repairs, or even groceries.

Short-term advances involve applying with a lender for a particular amount. If you get approved, you would get the funds usually within 24 hours. Scheduled repayments and terms, usually ranging from 16 days to a year, are outlined in your contract.

Credit cards can be used to withdraw cash from an ATM or transfer money from the card to an account. A higher rate (above 20% p.a.) is usually charged using a credit card for cash because this is not a purchase. It’ll be part of your outstanding balance, which you have to make a minimum monthly payment to keep the credit account in good standing.

Short-term advance and credit card – How much do they cost?

A short-term advance of less than $2,000 will cost you a 20% establishment fee and a 4% monthly fee. Getting an advance from your credit card will cost you between 20% and 24% p.a. The cash advance rate is an annual rate, whereas the short-term advance is not.

It can be cheaper if you pay back the cash advance quickly. If you could only afford to make the minimum repayment on your credit card, consider a short-term advance instead. With a short-term advance, you’re done once you’ve paid back the entire amount in the set term. Whereas the cash advance could be an ongoing debt.

Weighing up your options

Pros and cons of applying for short-term advances:

  • Availability. Most short-term advances have minimal requirements to be approved. This includes age, income, and residency.
  • Turnaround. Usually, you’ll receive an answer within minutes, and get the funds within a day or two.
  • Short terms. As these advances are paid back quickly, you’ll have no extra debt to worry about.
  • Fees. Rates can be higher than a typical personal advance, although they are mandated by the government. Aside from this, fees may apply on late repayments.

Pros and cons of cash advance with your credit card:

  • Accessibility. You only need to find an ATM and withdraw the cash you need.
  • Billing. As the cash advance is part of your credit card billing, it’s concise and you won’t have to worry about a new account.
  • Flexible repayments. You can pay off a credit card at your convenience, as long as you don’t mind the accrued interest.
  • Interest rates. The interest rate charged for a credit card is considerably higher than your standard personal advance. You’ll also accrue interest from the moment you make the cash advance.
  • Overall cost. The overall cost of using a credit card makes it an option you should think twice.

If you liked our “Short-term Advance vs Credit Card — Which is Better?” and find it useful, check our blogs regularly for more info on how to get out of debt and updates on the best budgeting apps in Australia.