Learn more about credit card loans and how they differ from cash advances

Unexpected expenses can wreak havoc on your finances and your mental health, but they’re unfortunately very common. Whether it’s a flat tire or emergency medical bill, these types of expenses happen to everyone. When you need money in a hurry, you could be looking for the fastest and easiest way to borrow. You want to avoid payday loans, so you might be considering a credit card loan. Learn about credit card loans, and how they differ from credit card cash advances.

What is a credit card cash advance?

Many credit card companies offer cash advances that allow you to borrow cash from your credit card’s cash advance limit, which you can find either by reviewing your terms and conditions or reaching out to your credit card company. You can withdraw cash at an ATM, using a PIN provided by the credit card company. However, a credit card cash advance might not be the best option considering they charge fees on top of interest. In addition, interest begins accruing immediately, unlike credit card purchases.

What is a credit card loan?

A few credit card companies are now offering loans. Credit card loans are based on your existing credit limit you have with the company. You don’t need to apply, and borrowers receive funds through direct deposit or mailed check. If your credit card company offers credit card loans, they will tell you how much you can borrow and provide you with an interest rate based on your spending habits and creditworthiness. Your loan can be managed through your existing account, and you can view how many payments are left until you pay off your loan. While this may sound like a great option for unexpected expenses, there are some drawbacks.

Drawbacks of credit card loans.

Like other forms of debt, a credit card loan will increase your credit utilization ratio. This is the amount of available credit you are using and impacts your credit score significantly. The more credit you use, the lower your credit score becomes.

Another pitfall to credit card loans is the amount of interest they charge. A credit card loan might not be as costly as a credit card cash advance, but you might qualify for a better credit score if you borrow through a personal loan lender, depending on your credit score and the lender. Shopping around is key to ensuring you are being charged the best rate for the amount of money you want to borrow.

Alternatives to credit card loans.

We’ve already addressed personal loans as an alternative to credit card loans, but you have other options as well including:

• Salary advance – you can ask your employer for an advance on your paycheck
• Buy now, pay later plans – some retailers offer buy now, pay later plans
• 0% APR credit card – if you don’t have too many credit cards already, this can help you avoid paying interest for the introductory period
• Savings or emergency fund – you can tap into your savings account or emergency fund

Summary

When you have an unexpected expense, a credit card loan is a new option you might be considering. They are different from credit card cash advances in that they have better rates and fewer fees. However, they may come with higher interest rates than other types of loans like personal loans. Always compare your options before choosing a loan to save.

Looking for fast funding? You can get started at Uprova.com and borrow up to $5,000 if approved.